Acknowledgment

This research project would not have been possible without the support from many people and I would like to thank the individuals who helped me make this thesis possible.

First of all, I would like to thank Prof. Dr. Zarnekow and Dr. Koray Erek from the Technical University Berlin for granting me this opportunity to write my thesis abroad as well as Prof. Dr. Avedesian from the McGill University in Montreal for supporting me and opening valuable doors for me in Canada.

A special thank you goes to all the interviewees who gave me not only a portion of their time but also valuable and personal insights into their success stories and experiences. In particular, I would like to thank Alexandre Guimond, André Forest, Andrei Uglar, Aydin Mirzaee, Charles Cazabon, Cheryl Han, Eduardo Mandri, Hicham Ratnani, Jason Lobel, Jean-Phillipe Robert, Jeff Grammer, John Elton, Katherine Barr, Lorne Trottier, Olivier Coste, Pierre Fleurent, Radu Pislariu, Ram Panda, Steven Abrams and Yona Shtern.

I also would like to thank the Foundation of German Business (“Stiftung der Deutschen Wirtschaft”) for their financial support granted through an academic scholarship as well as Jonas Repschlaeger for giving me the opportunity to work from abroad.

Last but not least, I want to thank my beloved family and friends who supported me through this adventurous journey – I am very grateful for the support of each one of you.

List of Interviewees

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Abstract

Every day an increasing number of business ventures (startups) are founded all over the world, especially in North America. Particularly the number of internet-based startups (e-business startups) with the endless possibilities of the online world is increasing continuously. However, most of these startups fail, while only a minority is able to survive and actually be successful. The research objective of this thesis is to identify and understand the factors that make an e-business startup successful.

As a result, a six-step success factor model was generated that consists of the following six categories: preparation, entrepreneur/team, product/idea, financing, targeting and execution as well as one additional category, the external factors. Each of the categories consists of several specific success factors, such as team structure, network or scalability. Furthermore, the venture financing as an integral part of the six-step model was analyzed in detail and the decision-making criteria of venture capitalists were identified. The three decision-making categories for venture capitalists are the team, the product as well as the market along with the strategy. Each of these categories consists both, knock-out criteria (must-requirements, such as problem-solving product) and more detailed criteria (such as team experience or exit-strategy).

Given that non-quantifiable factors can also contribute significantly to the success of a business, it is important to consider factors such as the challenges, success paths, behaviors as well as decisions of the founders and entrepreneurs of e-business startups. Furthermore, expert-opinions such as those of investors with substantial experience in that field can contribute significantly to assessing the success of an e-business, and are thus important to take into account. Hence, 20 interviews with successful entrepreneurs/CEOs and (co-)founders as well as highly experienced investors/venture capitalists were conducted to gain valuable insights. The research method used is the Grounded Theory Method, which is one of most valid methods to generate new theories in such under-researched fields based on qualitative interviews.

1 Introduction

“The creation of new ventures plays a decisive role for the social and economic development of every country.” (Kollmann 2006). The economy relies on business startups and their growth for a country’s wealth (Lowrey 2009). As a result of new startups, competition gets stimulated and the economy gets driven further (BMWi 2013). Particularly, electronic business startups (e-business startups) are a key resource in today’s internet-based world, and impact the macroeconomics of a nations industry significantly. Due to ongoing digitalization and connectivity, e-business startups are experiencing a boom (Forrester 2013). However, based on a Harvard Business School study more than 75% of (venture-backed) startups companies fail (Wall Street Journal 2012). The startup genome report, coauthored by Berkeley and Stanford faculty members, even identified a high-tech startup failure rate of 90% (Marmer et al. 2012). The question resulting is what is the successful minority doing differently compared to the failing startups? This thesis aims to deal with that topic in order to support potential future and current entrepreneurs of startups to minimize the risk of failing as much as possible.

Entrepreneurship, as the referring field of study, deals with topics regarding the creation and management of new business startups. Nevertheless, the value of research in entrepreneurship is often controversially discussed. Many Chief Executive Officers (CEOs) claim that educating entrepreneurship is nearly impossible due to the complexity of the field paired with the experience-based knowledge required for success. However, there is concrete evidence that entrepreneurship education does indeed increase the human capital of entrepreneurs (Martin et al. 2013). Thus, the goal of this thesis is not only to contribute to entrepreneurship research but also support and enable entrepreneurs on their way to success.

1.1 Research Objectives and Questions

The in the previous paragraph described initial situation emphasizes the necessity of a scientifically grounded framework describing the success factors of startup companies. Thus, the research objectives of this thesis aim to identify and understand the factors that make an e-business startup successful. Given that non-quantifiable factors can also contribute significantly to the success of a business, it is important to consider factors such as the challenges, success paths, behaviors as well as decisions of the founders and entrepreneurs of e-business startups. Furthermore, expert-opinions such as those of investors with substantial experience in that field can contribute significantly to assessing the success of an e-business, and are thus important to take into account. Thus, the following central research question is to be answered in this thesis (Q1):

In order to assess all aspects contributing to Q1, four supporting questions were designed. These four supporting questions (S11-S14) examine the central question (Q1) from different angels, enabling a very detailed and comprehensive research question set in total.

However, in order to be able to understand the challenges, factors and conditions that make an e-business startup successful, it is important to understand the concept and characteristics of (e-business) startups first. Thus, another question contributing to the central research question is (Q2), followed by support questions (S21, S22):

As a central element of entrepreneurship and startup research, the aspect of startup financing contributes to the overall concept of a successful startup. Particularly, the process of raising money and thus being accepted by investors for funding in order to build a startup is relevant. Hence, another research question is addressed during this thesis (Q3):

1.2 Research Design

This thesis is submitted in partial fulfillment of the requirements for the degree of a Master of Science at the Technical University Berlin (TU Berlin), Chair of Information- and Communication Management of Prof. Dr. R. Zarnekow. In addition to the supervision of the TU Berlin, this thesis was in partial co-supervision with the McGill University, Desautels Faculty of Management, Prof. Dr. M. Avedesian. This thesis can be assigned to the research area of Entrepreneurship.

As an integrated approach of literature review and qualitative analysis, this thesis combines both findings from the current state of literature as well as creating new insights by interviewing 20 experts from this field of research. The semi-structured interviews were mainly held in North America, specifically Canada and USA. The interviewees were chosen based on a two-perspective approach: one perspective is based on the founders and entrepreneurs themselves (=internal perspective) while the other is based on investors, such as venture capitalists and business angels (=external perspective). Both groups have a direct connection to startups and thus form the ideal sample. The method used to analyze and evaluate the collected data is the Grounded Theory Method (more details in chapter 3). This method is particularly recommended in under-researched areas, such as success factors of (e-business) startup companies. With various coding and analysis instruments provided by the Grounded Theory Method, several theories were generated resulting in a theoretical framework of success factors (six-step model). Further the decision-making process for investment was examined under for startups relevant aspects (criteria for investment). Finally, the findings were compared to the current state of literature.

1.3 Structure and Proceedings

The structure and proceedings of this thesis can be depicted from Figure 4.

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Figure 4: Structure and Proceedings of Thesis. Source: own design.

2 Theoretical Basics for Startups and Entrepreneurship

In order to be fully able to understand the success factors presented later in chapter 4, some theoretical basics need to be presented upfront. This chapter focuses on the concepts of entrepreneurship, the definition and characteristics of startups in general as well as electronic startups (e-business), followed by the financial terms and options within the startup financing part.

2.1 Entrepreneurship

Originally the term “entrepreneurship” comes from the French verb “entreprendre”, which can be translated best with “to undertake something” or “to take something in someone’s own hands” (Müller et al. 2012) .

The roots of entrepreneurship and entrepreneurial research go back to Schumpeter (1911), the first major economists dealing with this topic (Drucker 1993). Breaking the traditional economics, Schumpeter (1911) believed that a dynamic disequilibrium created through innovation by an entrepreneur is far more efficient and influential towards a healthy economy (Schumpeter 1934). Schumpeter (1911) also distinguished clearly between the concepts of the entrepreneur and the manager, believing that although there are overlapping skillsets and characteristics for both, a differentiation in the context of entrepreneurship is necessary. Since then research in entrepreneurship is, while improving both in quality and quantity over the last few years, still based on relatively old theoretical frameworks and models from traditional research fields such as economy and management (Landström et al. 2012). Thus, the need for a more intensive entrepreneurial research is urgent. However, entrepreneurship has been evolving to one of the key concepts in management settings without having reached its peak yet (Styhre 2005) (Murphy et al. 2006). Modern and especially unified theoretical frameworks together with methodogical approaches are still lacking (Jones et al. 2011).

The definition of entrepreneurship is facing several challenges similar to its frameworks and models. An agreed and common definition of what precisley entrepreneurship is and constitutes is yet to emerge (Kobia & Sikalieh 2010) (Rauch et al. 2009). A unified definition is difficult to reach especially due to the complexity and diversity of the various ways of being entrepreneurial (Anderson & Starnawska 2008). Kobia & Sikalieh (2010) argue that the reason for a lack of a common definition is mainly that researchers focus on specific parts of entrepreneurship, such as the entrepreneur itself or the opportunity identification, instead of taking the whole entrepreneurial process into account (Kobia & Sikalieh 2010). While in partly agreement with that point, Landström et al. (2012) find that a more knowledge-based focus with insights into theoretical and practical aspects as well as a stronger link between entrepreneurship and innovative studies should be aimed for (Landström et al. 2012).

In order to give an overview of the definitional issue Table 1 presents various relevant definitions of the entreprneurial literature.

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Table 1: Definitions of entrepreneurship. Source: own design.

As can be seen from Table 1 the term entrepreneurship is clearly too broad to be classified in a single, universal construct. Taking the definitional issue into account, this chapter aims to present an idea and concept of entrepreneurship which is not only based on symptomatic facets but also integrates contextual aspects in order to set a clear picture of what entrepreneurship consists.

Entrepreneurship can be described best as a dynamic process (Parkinson & Howorth 2007) that contains four basic elements: the entrepreneur, the business organization/venture, the market opportunity and the resources. (Wickham 2004). The entrepreneur, as the executor of the entrepreneurial process, forms the core element within that process. It is the entrepreneur who recognizes an undiscovered market opportunity, responses to them with commercial strategies and business models, as well as executes that business model through the coordinated and efficient use of resources (Wickham 2004) (Gründerszene Lexikon 2013). Nevertheless, the entrepreneur does not necessarily have to be the owner of a company (Müller et al. 2012).

The foundation of a venture under entrepreneurial aspects refers to a new business that is not about the resources already under control and the administration of those but rather a new business based on a recoginzed market opportunity (Kollmann 2009). This includes a permanent search for and adaption to change in order to exploit opportunities that result out of that active search (Drucker 1993). Solving a relevant “problem” in the economic system by addressing an unmet need in the market with new knowledge, brings change to the economic system and creates new value for the customer and system (Wickham 2004) (Hougard 2005).

In addition to the previously mentioned characteristics there are two more points that are significant for the concept of entrepreneurship: high risk (Gartner 1990) (Drucker 1993) as well as innovation (Kollmann 2011) (Jiwa et al. 2005). As one of the first pioneers in the field of entrepreneurship Knight (1921) linked the expectedly high profits in entrepreneurial ventures to the conditions of high uncertainty and risk, which is still a valid basis of entrepreneurship today (Knight 1921) (Müller et al. 2012). The very high risk in entrepreneurship can be partly explained by the fact that an entrepreneur has to choose new paths, such as new market opportunities or innovative business models, that haven’t been taken before (Kidder 2013). Therefore, the high risk and uncertainty is an essential part of entrepreneurship, especially in areas that are subject to high degrees and frequent appearances of innovation such as high-tech and IT (Drucker 1993). This is also implied by the very low success and survival rates of newly created business in those fields (Drucker 1993) (Marmer et al. 2012).

As mentioned earlier, the availability of the factor innovation or some sort of uniqueness within the entrepreneurial process is required. Innovation or uniqueness in the context of entrepreneurship can be achieved by a “[…] special way of thinking, a vision of accomplishment, (an) ability to see situations in terms of unmet needs […] (or the creation of) a unique combination (of resources).” (Gartner 1990). This new structure and combination can refer to material or immaterial factors. (Kollmann 2011). Especially the immaterial factors, such as knowledge or data, have been experiencing an increase in significance lately. For instance, many new ventures are based in the IT and telecommunication field where know-how is key (Kollmann 2011). All of that leads to the result that innovation and orginiality is necessary for the real meaning of entrepreneurship, and they are usually a result of resource-scarcity and thus improvisation (Kollmann 2009).

Last but not least, it is important to mention, that the advantage-seeking behavior of entrepreneurs results in value for the entire macroecnomic system, including individuals, organizations and the society (Hitt et al. 2011). This is mainly due to the frequent interaction between the entire environment and the individual attributes and products of the entrepreneur (Stam 2009).

Taking everything into account, entrepreneurship can be summarized as a highly innovative and interactive process of an executor (the entrepreneur) addressing and targeting a new market opportunity by a new business organization/venture through the combination of new resources and all that under high risk and uncertainty. An overview can be depicted from Figure 5.

2.2 Startups: Definition and Characteristics

As mentioned in chapter 2.1 the entrepreneur, as the core element of entrepreneurship, starts and controls the process of building a new business. In the every day practice new businesses in general are often referred to as “startups” (Drucker 1993) (Gründerszene Lexikon 2013). This is not thoroughly true, in fact, it is wrong in many cases. The small new bookstore that has just opened around the corner cannot be called a startup or an entrepreneurial element, while a big new innovative online market place, like amazon has been, could be (Kollmann 2009, p.373). But what is the difference and how can a startup be distinguished from a “normal” new business?

The roots of the term startup, which in the previous chapter was referred to as an “entrepreneurial venture”, go back to the dot-com boom[1] between 1997-2000, during which it was used to describe new venture-backed technology companies (Kidder 2013). Startups usually operate in the area of electronic business, information and communication technology or life sciences (Achleitner 2013) (Bloomsbury Business Library 2007f). With a limited operating history, they can be described as a young, not yet established company with the goal of implementing an innovative business idea, that has been founded with very low starting capital (Achleitner 2013). Steve Blank (2010) describes a startup as an “[…] organization formed to search for a repeatable and scalable business model.” (Blank 2010) So the core element of the startup in Blank’s definition is the business model, which describes how the company is creating, delivering and capturing value (Blank 2010). The business models are often based and focused on a rapid short-term success, since the goal usually is to grow rapidly and go either public or sell off as quickly as possible and to generate profit, not necessarily for the company but for the founders (Bloomsbury Business Library 2007e). Considering Schumpeter (1934), a disruptive component should be the center of the business model, something that breaks existing and traditional structures and principles.

Usually, startups come with a very high risk and reward profile due to an extraordinarily high growth-potential (Achleitner 2013) (Kidder 2013). This high growth potential results into the concept of scalability and is crucial for startups (Gruenderszene 2013).

There are various different labels and notations for the phases of a startup life cycle. The starting point in the life cycle of a startup Figure 6 is commonly a unique vision of a specific product as well as some general ideas about the pieces of the business model in combination with very low (financial) resources (Blank 2010) (Gruenderszene 2013). The beginning deals with questions such as the identification of customers, the choice of distribution model and channel, the scalability plan, the pricing and position of the product, the creation of end-user demand, potential key partners as well as where and how to build the product and – the most important issue – how the financing is supposed to happen (Kidder 2013) (Blank 2010). Although startups are often entirely self-funded at the very beginning, they usually seek funding at an early point addressing friends and family, angel investors and/or venture capitalists (Walsh 2009) (more details in chapter 2.4). In order to grow very fast a startup needs to build a product that many people want while being able to serve those people (Graham 2013). This will result in a growth that roughly consists of three phases forming an S-curve Figure 6: (1) the beginning, where there is no or very slow growth when the startup is still figuring out its strategy, (2) the rapid growth that follows when the startup is able to deliver and reach the market and (3) reaching the status of an established company, eventually the growth will slow down due to market rules and/or internal reasons (capacity, etc.) (Graham 2013).

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Figure 6: Startup Life Cyle. Own design based on (Angel Investment Network 2011).

In order to exploit the high potential of growth, startups try to reach various milestones, such as break-even and profitability, with the minimum amount of required capital. However, the transition period from a startup company to an established company is not necessarily a specific point. There is no exact predefined point of when a startup is actually not a startup anymore, although in practice it is often associated with certain milestones such as the point of reaching profitability, going public or a buy-out (Kidder 2013).

Going public or a buy-out require a company evaluation. Since typical characteristics of a startup include a lack of past data, negative cash-flows, new products and a high degree of uncertainty, it can be very difficult to estimate the value of a startup (Grummer & Brorhilker 2013). As a result, assumptions have to be made and even slight changes in the conditions can result in significant effects on the outcome of the evaluation (Grummer & Brorhilker 2013).

In order to build a high-valued company, a startup has to keep track and manage its resources very carefully. The action cycle and resource structure of a startup can be explained with four major components (Gupta 2002):

1. The first component is the idea, representing the intellectual resources.
2. The second component is the strategy of what is supposed to happen (representing the actual venture resources).
3. The third component is the execution of the strategy, meaning how is the strategy going to be put into practice (representing the leadership resources)
4. The fourth and last component is the impact of the startup on the customers, business partners, competitors and environment (the relational resources).

The last component is basically a feedback component that needs to be reflected and implemented iteratively into the other three components in a dynamic process. And it is essential to a startup’s success to get customer feedback as soon as possible, since this enables the founders of the startup to validate the business models they chose (Blank 2010).

The organizational structure of a startup differs obviously on the type of business it is in. Still there are similar tendencies valid for most startups. They usually consist mainly one top manager, although often co-founded by more than one person, and there are some employees in the technical area (Daft 2009). There is a direct supervision from the chief executing officer (CEO) rather than by supporting departments or middle managers as can be depicted from Figure 7 (Daft 2009). Thus, flat hierarchies and freelancers in order to save costs are most common as well as a very young team in general (Achleitner 2013).

Since the primary goal of a startup is to survive in the industry, there is usually little to none formalization or bureaucracy within the organization (Daft 2009). This helps especially to react and adapt dynamically to changes since the flexibility and simplicity enable quick maneuvers to arising challenges (Daft 2009). In addition to surviving in the marketplace, in the beginning the focus in startups is on product and/or service development. The commitment of the founders, the entrepreneurs, is mainly on the technical activities of production and marketing (Daft 2009). Also a multitasking ability paired with a variety of skillsets are critical (Daft 2009).

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Figure 7: Organizational structure of a startup (entrepreneurial structure)
compared to other company models. Source: own design based on (Daft 2009).

Comparing amazon to the bookstore at the corner it becomes obvious that amazon with its ability to scale, with a huge growth potential, high risk and reward profile, its innovative business model and management concepts did qualify as a startup until becoming an established company and the big player it is today. So summarizing the information in this chapter, a startup can be distinguished from a new business based on three main factors (Wickham 2004) (Graham 2013) (Walsh 2009).:

1. the existence of a significant innovation on which the venture is based,
2. the expression of clear strategic objectives with impact,
3. a high risk with an extraordinary growth and scaling potential.

Startups vs. Mature Companies in Practice

As can be seen in Figure 6 the moment a startup develops into a mature company is not just a specific point but rather a continuum. In the following the interviewees were asked to identify when a startup is not a startup anymore but a rather mature company based on their experience.

The criteria relevant in practice, which differentiate a startup from a mature company, are the following: financial aspects, number of employees, time in market as well as growth pace and the role of founders. To begin with the financial aspects, a mature company has reoccurring revenue and is reaching profitability (I_2, S_11, I_9). The fixed costs can be covered by the business itself (I_5) and the company is getting financially independent from other sources than the revenue itself (S_16, S_17): “That means, that you don't need more money from outside to pay your monthly bills and employees.“ (S_18).

As a personal and influential indicator for a mature company, the interviewees named a very interesting factor: “The other way to look at it, is on a personal level: when the business becomes much bigger as I am as a person.“ (S_17). Meaning the point, “ […] where the business is not relying on the founders to work anymore. Because in a startup, when you take out the founders, the startup dies. There is no company. So it is over. […]But in a company, people are replaceable.“ (S_10).

Furthermore, in alignment with the previously presented information in chapter2, the pace of growth is another indicator: “When they just have incremental growth in their revenues and values. When their growth speed reduces significantly, they reach the mature stage. And the risk is very little at that point, just like the growth.“ (I_6). Hence, even companies that do have a very high revenue but still are growing at a very high pace are often still considered a startup: “We are still growing at more than 100% a year. So with this huge growth we are still a Startup and we are always working on new products. For the media we will always be a Startup and for our customer we are an established company.“ (S_11).

Surprisingly, the criteria number of people and the time of the startup existing were barely mentioned, because “[…] there is no one firm number.“ (I_3). This is especially due to the huge variety of different types and characteristics of e-business startups. However, the numbers mentioned were: existing more than three years in the market and having over a 100 employees, in order to describe a mature company (S_12, S_21).

To sum up, a mature company does not depend on the founders anymore to execute, the (fixed) costs are covered by reoccurring revenue, there is just an incrementally increasing growth and it cannot be simply determined by a specific time of existence in the market.

2.3 Internet-based Startups: E-Business

In a world of internet dominance today and continuously increasing in the future, one significant competitive advantage for startups will be the technological development and access to knowledge, information and data (Porter 2011). A McKinsey & Company article from 2013 shows that IT-trends and challenges such as “big data” and “cloud computing” are predicted to dominate the future businesses (Bughin et al. 2013). A key success factor is and will be the access to market data and customer information (information leadership) (Kollmann 2006) . Traditional businesses use the internet in mainly two ways: (1) as a supporting instrument for the management’s every day work life and (2) as a complimentary source for sales and procurement (Bereuter 2012). The significant changes in the role of ICT and its resulting enormous impact have changed the way business is done. This can be seen in the case of the electronic business “amazon.com”. The way people buy, sell and even trade their goods online and internationally on amazon.com would not be possible without the existence of ICT. One example would be that the customer would all have to gather at one place to offer and/or buy a product. Specifically describing the act of creating an electronic business (“e-business”) in the internet world, the expression “e-entrepreneurship“ has been established in both research and business (Nasir 2012) (Matlay 2004) (Kollmann 2006). The term “e-business” has it roots in IBM when in 1997 IBM first presented their vision of how e-business could transform the world (IBM 2012). However, today often e-venture, e-business, e-commerce and any other related and e-abbreviated-words are used as synonyms in practice (Kollmann 2006). But what exactly is an e-business? This chapter provides a definition of e-business and presents its various appearance forms as well as characteristics. Since this thesis is dealing with entrepreneurial aspects rather than macro- and microeconomic issues, the specifications of the electronic competition (such as network effects, convergences etc.) will not be addressed.

Within the last few years e-business has been used in many different settings. There is no generally accepted definition in this case neither, however there are many common characteristics in the various definitions and descriptions in the literature (Maaß 2008). E-business refers to a business with “[…] an innovative business idea […], which, using an electronic platform in data networks (/internet), offers its products and/or services based upon a purely electronic creation of value. Essential is the fact that this value offer was only made possible through the development of information technology.” (Kollmann 2006). So e-business is a market relevant term where the buying and/or selling of digital and/or non-digital products and/or services and/or interactions is enabled through modern information and communication technologies (Nazir et al. 2005) (Maaß 2008) (Reuber & Fischer 2011). Another common focus of the definitions are the significance of electronic business processes, especially the transactions for the business and customer value (Maaß 2008) (Nazir et al. 2005). So ICT is seen as an enabler that facilitates new and innovative business models (Maaß 2008) (Kollmann 2004). This is remarkable, since in the past ICT has been more of a supportive instrument in the everyday business of companies, rather than having such a core functionality as it has today in the e-business world (Maaß 2008). Further characteristics include: being original and independent, having an enormous growth potential as well as high uncertainty regarding future developments (Kollmann 2011) .

The very dynamic internet environment is based on growing interconnections and digitalization as well as technological inventions and innovation, especially in the fields of: information technology, media technology, telecommunication and entertainment (Maaß 2008) (Jiwa et al. 2005, p.1) (Kollmann 2011). This leads to high ranks of investments, resulting in two points: “(1) information technologies require a certain amount of capital or funding for the initial development and/or company” and “(2) information technologies are subject to continual change and constant development thus requiring subsequent investments.” (Kollmann 2011) .

There are various e-business interaction bases. Considering the protagonists in e-business, which are the customer (C), the business (B) and the public administration (A), the following interaction combinations are possible: B2C, B2B, C2C, A2B, A2C and A2A (Maaß 2008). Additionally there are various types of e-business regarding the functionality of the e-business and the services offered. A detailed overview with descriptions can be depicted from Table 2.

However the types of e-businesses presented in Table 2 are not mutually exclusive. There are many overlapping e-businesses, such as “social shopping” where customers buy based on the recommendation of their friends. This would be a mix of e-store/e-commerce/e-marketplace and e-community, depending on the infrastructure.

The most relevant e-business-type for this thesis is the entity “e-commerce/e-store”, since most of the interviews conducted during this project had an e-commerce/e-store background (more information in chapter 3.2). E-commerce companies usually exist in B2C, B2B and C2C (Maaß 2008). Also e-commerce is seen as a big upcoming trend identified in a McKinsey & Company study in 2013, leading to an continuous decrease of entry barriers and creating new revenue streams for e-business companies (Bughin et al. 2013).

Nevertheless, there are specific challenges to e-commerce companies. If there are actual physical products that are being sold, an extensive partner network (logistics, delivery, supply chain, etc.) is necessary in order to get the product to the customer (Maaß 2008). This results in a complication of business processes since a high degree of coordination becomes necessary in addition to the online maintenance activities.

In e-commerce it is key to convert the web page-visitors into actual buying customer but even more important: to have repeated customers rather than just one-time customers (Maaß 2008). This is especially due to the fact that revenues in e-commerce/e-shops are mainly based on the actual selling of products (Maaß 2008).

2.4 Startup Financing: Financial Terms and Options

This chapter of startup financing deals with the various options a startup has in order to acquire the required capital to survive and develop into an established and mature company (Kollmann 2009). The focus in this chapter is not limited only to the costs of founding a startup but rather on all major capital expenditures during the various startup phases. Since the funding requirements and options differ based on the current stage of the startup, it is crucial to identify the stages of maturity in order to choose the adequate financing sources. However, it is important to say that there is not a strict distinction between the phases, it is rather a smooth flowing continuum, which is very much depending on the market and startup situation. Therefore, the stages and financing options at each stage presented in this chapter are a general approach based on common characteristics and requirements at each stage.

Using financing for the growth of a startup is essential but it also should be considered that it results in reduced equity and/or control of the startup. Furthermore, the amount of financing is not the only relevant issue but also the whole “value” the investors can provide (such as contact networks, mentoring, etc.) (Ochtel 2009). Taking these into account, the following is presented.

The four (respectively five) stages model in Figure 8 is an aggregated model based on the information presented in this chapter and functions as a guide for the financing options. Detailed descriptions of the options can be found after the explanation of the stages.

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Figure 8: Startup financing stages. Source: own design.

Stage 1: In the pre-seed stage the founders of the company are facing tremendous (financial) challenges that come with a full-time commitment. It is the beginning of the so-called “valley of death”, representing the time when a startup has not reached the break-even point[2] yet (Raichaudhuri 2010). The idea of the product or service is developing but no finished yet. Capital is needed for the prototype of the product, which is in the conceptual stage (Kollmann 2003). A business plan needs to be developed and the organizational structure has to be defined (Gabler Wirtschaftslexikon 2013). The company is not yet officially founded and the focus is on developing a functioning business model (Kollmann 2003). Although there is no actual product existing yet, there is already a need for capital in order to have feasibility and market studies for example (Kollmann 2003). Also the full team is not in place yet. (Small Business Development Center 2012).

The startup is usually financed through bootstrapping during the pre-seed stage, which includes personal savings, credit cards as well as personal time and energy (Goldberg 2012). Very early on founders understand the need for more capital and address friends, family and “fools” for money (Goldberg 2012) (Kollmann 2009, p.373).

Stage 2: During the seed stage capital is required in order to focus on the very early development of the product or service (Goldberg 2012). The costs are focused around the mentioned development and the derivation of a proof-of-concept as well as administrative cost of creating the startup and market research investments (Goldberg 2012) (Kollmann 2003). However, market research in today’s world of internet should not really require a significant amount of capital. Commercial operations are not part of this stage although customers already are defined and even might have seen a prototype of the product ideally (Goldberg 2012). Taking all these things into account, the strategy and the operations are supposed to wake the interest of potential investors and this needs to be integrated from the beginning (Goldberg 2012). This is particularly important when considering that seed financing is the investment with the highest risk for investors, since there are usually no revenue streams and the product-market-fit cannot be validated yet properly (Goldberg 2012).

The financing sources during the seed stage are in addition to the pre-seed choices (bootstrapping, the “three F’s”, governmental support) also business angels (Kollmann 2009, p.373). Addressing banks and credits for a loan is usually difficult since there is no record of revenues or other securities at that stage. However, in the rare case that a venture is able to convince venture capitalists of the very promising concept and potential that early on, some venture capitalists might invest at the seed stage as well (Kollmann 2003). Last but not least there are two more financing sources, the incubators and accelerators (Gobry 2011).

Stage 3: In the early stage(often also called “startup stage”, “starting up”, “expansion stage”) the capital is required for the final stadium of the product development, for marketing and administrative costs and especially to cover cash flow requirements (Goldberg 2012). The senior management is often (nearly) complete and the products are present and available at the market (Small Business Development Center 2012) (Goldberg 2012). Commercial operations have started and in some successful cases the break-even point might get crossed (Gabler Wirtschaftslexikon 2013). However, most of the startups are not yet profitable at that stage (Goldberg 2012). In order to keep up with the growth and more importantly in order to facilitate it, the company needs to expand. This expansion usually cannot be done just by the incoming revenues (Kollmann 2003). Thus, new rounds of financing are necessary, which is when mainly the venture capitalists (VC) come into play, especially since the startups can offer now a lower risk due to the availability of revenue streams (Achleitner 2013) (Kollmann 2003). Furthermore some business angels might still be willing to invest, although the amounts might be too large for independent angels. In some rare cases mergers and acquisitions (M&A) can function as a financing source at this stage too (Angel Investment Network 2011). The raised capital strengthens the areas of sales and marketing as well as manufacturing (Goldberg 2012). The core market is penetrated and the mass market will be targeted (Small Business Development Center 2012).

Stage 4: In the later stage the product is becoming widely available and the senior management might have reached its second generation, which means the original founder(s) might have been changed by experienced leaders (Gabler Wirtschaftslexikon 2013) (Small Business Development Center 2012). If there is still an external financing necessary, it is used to enable major expansion projects and advanced marketing initiatives as well as developing the organization and infrastructure into a large, scalable company (Small Business Development Center 2012) (Goldberg 2012). Profitability is reached and the risk for investors is as low and predictable as never before in the financing cycle (Kollmann 2003). Eventually, the company might start thinking about diversifying the original idea in order to enter another major growth stage (Kollmann 2003). A possible initial public offering (IPO) is an optional and often aspired step (Kollmann 2003) (Gabler Wirtschaftslexikon 2013). The capital used for the preparation of a IPO is called bridge-financing (Kollmann 2003) or mezzanine - financing (Ochtel 2009) .

Stage 5: In the initial public offering (IPO) stage the company has reached a maturity that makes it nearly impossible to still call it a startup. Thus, this stage is not topic of detailed discussion. Summarized, the company becomes publicly traded and the shares-structure of the stakeholders becomes a very important issue. At this stage usually the founders of the startup are not involved anymore. Crucial for the IPO is the business evaluation of the last stage, which is always a controversy between the entrepreneurs and investors (Small Business Development Center 2012).

In the following the financial sources are described in detail.

2.4.1 Bootstraping and The 3 F’s

Bootstrapping describes a financial instrument where the financing base is the founder’s own money and effort (Bloomsbury Business Library 2007b) (Gianforte 2007). It is especially used when the vision of the founder is not valued from external investors properly in order to invest (Kollmann 2003). Since during bootstrapping the founder only has access to its own money, the operations and actions are limited. Also within the aspect of bootstrapping the following self-financing instruments and operations can be included: sweat equity, which is the full and unpaid commitment of the founder, public grants and subventions/support from government as well as (rarely happening) pre-payments of customers before delivering the actual product (Cornwall 2009) (Kollmann 2003).

Bootstrapping comes with obvious limitations. The first choice in order to break this limitations is usually to ask close people for money (Kollmann 2003). These close people are usually friends, family and „fools“ (the “3 F’s“) who are willing to invest or lend money at such an early point with such a high risk (Kollmann 2003). The money of “the 3 F’s“, particularly in e-businesses, is exploited very fast since the very competitive market requires a fast growth and thus a fast product development (Kollmann 2003).

2.4.2 Business Accelerators / Incubators

Business accelerators, sometimes also called business incubators, (for example Y Combinator or TechStars in the US) are basically focusing on technology-based companies (Gobry 2011) (Napier et al. 2006). They act as coaches for startups in the beginning and receive a relatively small amount of equity in order to connect the founders to potential investors (Gobry 2011). Sometimes they also work fee-based (Napier et al. 2006). Accepting only approximately one percent of the applicants, the coaching by an accelerator can include everything from mentorship over network till office spaces (Gobry 2011). This can be especially interesting for completely inexperienced entrepreneurs.

2.4.3 Business Angels

A business angel is an individual willing to invest money in an unproven but well-researched startup (Bloomsbury Business Library 2007c). Angels are the first potential investors to address (in the seed stage) when looking for financing since they are more risk taking and thus more likely to provide an early investment than venture capitalists are (Bloomsbury Business Library 2007a). The invested amount of business angels is usually less than those of VCs (Bloomsbury Business Library 2007c). However, business angels do not just provide financial capital. They are often successful entrepreneurs who want to still be involved in their industry even after not being active anymore (Goldberg 2012). They provide guidance and mentorship for the entrepreneurs and the startup to a very individual extent (Kollmann 2003).

2.4.4 Venture Capitals

Venture capital (VC) financing, an option usually being required in the early stage after the seed stage funding, has the main purpose of providing enough financial capital to facilitate a tremendous growth (Goldberg 2012). Compared to other financing sources, venture capital usually provides the highest amount and can be used in nearly every stage up until the IPO (Goldberg 2012). Often VC investments are combined investments, where various investors create a pooling fund together and have partners administrating and making the investment decisions (Kollmann 2003) (Goldberg 2012). Because of the high amounts of investments, VCs require a proof-of-concept that usually cannot be delivered in the pre-seed stage and just rarely in the seed-stage (Taga & Forstner 2003). VCs support the startups with their expertise and network, although the extend depends deeply on the VCs (Mulcahy 2013) (Kollmann 2003). Also VCs usually become active on the board of directors of the startups in order to protect their long-term investments by having operational power (NVCA - National Venture Capital Association 2013). Therefore, it becomes obvious that VCs typically have an industry focus in investment and a specific amount of partners who can actively take part in a startups development. Although it is not possible to give an amount of fixed shares VCs invest for, VCs usually expect annual rates of return of approximately 30%-50% over a three to ten year period, resulting out of an exit like an IPO, a buy-out or a merger and acquisitions event (Goldberg 2012). However, VCs are also critically seen, especially when it comes to the sustainable long-term success of a startup. This is because their interests are rather on a favorable exit and thus on high growth, regardless of the fact that a too high growth pace might not be best for the startup in all situations (Birol 2012).

2.4.5 Corporate Venture Capital

Corporate venture capital (CVC) operates very similar to independent VCs with the difference that they do have strategic interests in their industry (Kollmann 2003). This is especially due to the fact that the funds are usually financed by big players in the industry (such as Microsoft Ventures of Microsoft) who want access to innovation and influence future developments in the industry (Bloomsbury Business Library 2007d) (Kollmann 2003).

2.4.6 Bridge-financing and Mezzanine-financing

Bridge-financing or sometimes referred to as mezzanine-financing is the last round of financing and is the process of preparing a company for an IPO by increasing the private equity in a company in order strengthen the balance sheet, resulting in a higher value at the company evaluation (Ochtel 2009) (Kollmann 2003). The bridge-financing capital is often structured in a way that it will be refinanced by the income made by the IPO (Gabler Wirtschaftslexikon 2013) or by a buy-out (Ochtel 2009). The capital for bridge-financing can be generated by various sources, such as VCs, business angels, corporate partners and many more. The mezzanine loan investors are debt holders and thus their rights are superior to those of the shareholders which results in a higher degree of security than bank loans would have (Goldberg 2012).

3 Method and Research Process

The method and research process used in this thesis is based on the Grounded Theory Method (GTM). In addition to a detailed discussion and description of the GTM, this chapter explains the data collection and data analysis process.

3.1 Grounded Theory Method

Previous research literature in the area of successful venture creating does not provide many theories that can be used to derive useful information for the process of creating a new business. Therefore, generating theories from new and available data would be the best choice to face the challenge of creating a useful guide and model towards a successful startup. Particularly in under-researched areas, such as success factors of (e-business) startups, the Grounded Theory Method (GTM) introduced by (Glaser & Strauss 1967) would be a very adequate choice of research method (Seidel & Recker 2009). This is especially due to the fact that the Grounded Theory Method is accepted as a method suitable for new, relevant and undiscovered theories (Seidel & Recker 2009). Rather independent from the field of research, in business and management research the GTM is a well-established and widely recognized method for developing theory and understanding complex social processes (Locke 2001) (Ng & Hase 2008). Thus, providing a systematic approach of analyzing and coding interviews, the GTM is perfectly suitable for the purposes of this thesis.

The purpose of the GTM is to derive theory from data for an understanding of a social context (Halaweh et al. 2008). In particular, at the beginning there is just a research area rather than an actual hypothesis to confirm or reject. Hence, the actual theories are going to be derived during and as a result of the research process. The techniques during the GTM enable the researcher to generate an integrated set of concepts, providing a “[…] thorough theoretical explanation of social phenomena under study.” (Strauss & Corbin 1990b). The findings deliver contextual explanations and not just descriptive information (Ng & Hase 2008). While doing both, explaining and describing, GTM offers some predictability, which is however restricted to the existence of specific conditions, which need to be revealed by the author (Strauss & Corbin 1990b). Although the conditions of the different researched situations usually are not similar on a very detailed level, the major conditions do offer more similarities (Strauss & Corbin 1990b). Therefore, the GTM is not actually reproducible exactly but it is verifiable (Strauss & Corbin 1990b). This particularly makes it likely for practitioners and research to derive relevant information from the insights (Ng & Hase 2008).

There are two main approaches in GTM that are commonly called the Glaserian approach and the Straussian approach based on the two original authors (Glaser & Strauss 1967) (Hekkala 2007). An overview of the main differences between the two approaches by (Halaweh et al. 2008) can be found in Table 3.

In GTM the prevention of prior assumptions and thoughts biasing the author is important. This bias is mainly referred to the fact that the researcher might impose ideas from previous knowledge on the coding process (Urquhart et al. 2010). Hence, Glaser (1992) suggests that a literature review should not be done before conducting the study/the empirical research (Glaser & Strauss 1967) (Urquhart et al. 2010) (Halaweh et al. 2008), particularly aiming for an open mind (Ng & Hase 2008). However, (Strauss & Corbin 1990a) argue that some knowledge resulting out of a brief literature review will have a positive impact of the outcome of results (Strauss & Corbin 1990b) (Halaweh et al. 2008). Still, it is not defined how much and to what extent literature review is recommended without violating the GTM principles (Ng & Hase 2008).

The underlying data for the GTM can be taken from different sources, including interviews, observations, (governmental) documents, tapes, books, newspapers, etc. (Strauss & Corbin 1990b). The samples are chosen during the research process as needed up until a point referred to as “theoretical saturation” (Glaser & Strauss 1967). This point can be best described as the point of minimal incremental learning because derived phenomena have been seen before (Eisenhardt 1989) or where no new data lead to new significant insights anymore (Strauss & Corbin 1990b). The role of the researcher as an observer and interpreter is crucial to (Strauss & Corbin 1990b) who see the linkage between conditions, actions and consequences as the researcher’s responsibility (Strauss & Corbin 1990b).

From the two approaches of GTM the Straussian approach is more well-known and regarded more accessible than the Glaserian approach (Urquhart et al. 2010). Thus, the following presents the most important process steps of GTM based on (Strauss & Corbin 1990b). These steps can also be depicted in from the summarized Figure 10.

In the GTM the analysis starts right with the first data that is collected. The analysis and the data collection are interrelated processes that follow a back-and-forth iteration (Glaser & Strauss 1967). Thus, the whole process is iterative. The insights of each analysis step get incorporated in the next empirical questions, giving guidance and direction to the questions and resulting in a very efficient process (Glaser & Strauss 1967).(Strauss & Corbin 1990b).

The integral part of the analyses is the building of concepts - the so-called unit of GTM - out of the data. These concepts are potential indicators of the researched phenomena, eventually to be developed into theories (Seidel et al. 2008). The concepts are considered for a theory by ideally appearing repeatedly in the data and eventually being grouped into relevant developed categories (Strauss & Corbin 1990b) (Seidel et al. 2008). The categories are evolved from making comparisons of the concepts, considering the conditions and phenomenon it represents, as well as the interaction and consequences it produces (Strauss & Corbin 1990b).

The theoretical sampling is another crucial part of GTM. At the beginning of the research project, the researcher chooses representatives of groups or organizations based on the – at that point – restricted ideas on the phenomena, the object of the study (Strauss & Corbin 1990b). The phenomena will be analyzed by means of conditions, action and interaction as well as consequences in order to build a theoretical explanation (Strauss & Corbin 1990b). This analysis is based on constant comparisons of incidents and identifications of patterns as well as variations (Strauss & Corbin 1990b). One of the key features of the GTM is that hypothesis, that are created during the constant comparisons, get constantly revised “[…] until they hold true for all of the evidence concerning the phenomena […]” (Strauss & Corbin 1990b). However, in order to reach such a status, the conditions must constantly be broadened and extended. Overall, the theoretical sampling delivers consistency and representativeness for the GTM.

In order to keep track of the whole process the theoretical memos function as a supporting system, including the comparisons, concepts and categories, theory fragments and any additional thoughts (Strauss & Corbin 1990b). For Glaser (1978) the memos were so essential for GTM that without using them the method would not be a real GTM (Ng & Hase 2008). The memos not only increase the abstraction level, they also facilitate the conceptualization of the participant’s concern with the core categories (Ng & Hase 2008).

The analysis in GTM is based on the coding process. During the coding a high sensitivity of the researcher is required in order to identify the significant data appropriately (Halaweh et al. 2008). A general mindset of staying open and a search for latent patterns is the key (Glaser 2013). The coding process is divided in three basic steps: the open coding, the axial coding as well as the selective coding (Strauss & Corbin 1990b) (Strauss & Corbin 1998). The first and interpretive step is the open coding (Strauss & Corbin 1998). The data gets segmented analytically, aiming to give the researcher an idea of the phenomenon (Strauss & Corbin 1990b). Concepts are built in order to identify and find evidence for grouping them into categories (Seidel et al. 2008) (Strauss & Corbin 1998). The analyzing process can be done by concentrating on phenomena in paragraphs and sentences or line-by-line (Halaweh et al. 2008). The second step is the axial coding, where the categories evolve out of the concepts and get connected into sub-categories that are verified by the data (Strauss & Corbin 1990b). The previously segmented data get reassembled (Halaweh et al. 2008). Hence, the categories get extended and developed further (Strauss & Corbin 1990b). To achieve that, the codes and categories can be classified into four types of representation: phenomena, conditions, actions and interactions as well as consequences (Seidel et al. 2008). The third and last step of the coding is the selective coding. During this process categories that still need descriptive details are filled with content (Strauss & Corbin 1990b) The main purpose of this stage is to represent the central phenomenon by identifying a core category that includes and unifies all the other categories (Strauss & Corbin 1990b) (Seidel et al. 2008). The core category results out of repeated appearances in the data and the actual theory gets refined and integrated (Halaweh et al. 2008). Part of this phenomenon are both, causal and intervening conditions as well as consequences (Seidel et al. 2008)

Summarizing the systematic coding process in GTM, the following can be seen as a simplified structure: After examining the empirical data, open codes are created that result in concepts. These concepts are developed further to build categories. Using those categories, the phenomenon and surrounding conditions can be explained and thus the theory can be generated.

Taking everything into account, GTM follows a systematic approach and creates extensive and logical theories, both under the aspect of good science as well as explanations and predictions for practice (Fernández et al. 2002). The four main characteristics of the GTM are (Urquhart et al. 2010):

1. Theory building is the main goal,
2. The prior knowledge should not lead to the analysis/verification of pre-formulated hypotheses, hence the emergence from theories from the actual data should be the priority,
3. A detailed analysis and conceptualization are the focus of the GTM, where a comparison is made between every single data and existing/derived concepts in order to check for an enrichment of an existing or the creation of a new category,
4. Based on the process of theoretical sampling the data are selected, which includes of deciding on where sampling next.

3.2 Data Collection Process

As already explained in chapter 3.1 the Grounded Theory Method as a qualitative and empirical instrument is the best suitable research method for this thesis. This chapter presents the process of data collection used in this thesis.

3.2.1 Interview Design and Process

In under-researched fields interviews prove to be a very efficient instrument to gain insights and generate findings, especially when the researcher will not get more than one chance to interview the person of interest (Bernard 2011). The most important advantages and disadvantages of interviews can be summarized as following (Krallmann et al. 2013):

+ Especially good for understanding processes with their difficulties and challenges as well as complex phenomena;
+ Easier to get true and complete answers in a personal ambience rather than with a written survey – even more extensive information might evolve;
- Difficult to handle the massive appearance and existence of information and data
- Depending on the performance of the interviewer and a high amount of time is necessary (acquisition; preparation; conduct; evaluation)
- Depending on the willingness of the interviewee.

An interview-guide is required enabling the interviewer to lead the interview in the direction of the research phenomena. Such a guide can be either structured (standardized), semi-structured (semi-standardized) or unstructured and can be addressed to one or many people, depending on the interview type (Bernard 2011) (Krallmann et al. 2013). While structured interviews have a strict list and order of questions that every interviewee is asked, semi-structured interviews are designed to have a flexible pool of questions prepared that are sufficiently open (Wengraf 2001). This gives the interviewer the ability to react flexible on answers given by the interviewee. Thus, semi-structured interviews fulfill the requirements of the GTM since constant and spontaneous adaptions to the answers of the interviewee are a requirement (see chapter 3.1). Hence, the semi-structured interview guides were chosen for this thesis.

During the interview stage of this thesis, the interview guide was progressively optimized in order to get a deeper understanding of the researched phenomena. These changes resulted out of insights from previous or current interviews. Nearly every question was an open question, except for some minor estimation questions. The process of the question adaption is documented in each transcription.

The interviews of this thesis were conducted between April 2013 and September 2013. Each interview was just a one-time oral interview. For the quality of the interview the relationship between the interviewer and the interviewee is significant (Zaltman & Moorman 1988). Thus, in order to build trust, the interviewees each received a project description upfront describing the supervising institutions and persons (Technical University Berlin, Prof. Dr. Zarnekow; McGill University Montreal, Prof. Dr. Avedesian) as well as the possibility to ask any questions via personal contact with the interviewer. Also the interviewees were assured that the purposes of this research project are research motivated only and not for commercial use, since this question came up a few times at the beginning. Furthermore, the interviews were usually in locations familiar for the interviewees, in particular: their offices. The author of this thesis was the only person functioning as an interviewer, reducing the complexity for the interviewees to a minimum. At the beginning of the interview there were a few minutes for an appropriate introduction and the possibility for the interviewee to ask every question he or she might be interested or concerned in. After all the questions of the interviewee were answered and the interviewee seemed ready, the interviewer presented the structure of the interview and asked for permission of recording, which was granted in every case and the interview started.

3.2.2 Sample and Acquisition of Interviews

Qualitative research focuses on understanding complex phenomena and need to be representative. This representation is reached by an adequate sample size. In order to follow the GTM an adequate sampling size is not based on the number of interviewees but rather “[…] in terms of concepts, their properties, dimensions, and variations. […] In grounded theory, representativeness of concepts, not of persons, is crucial.” (Strauss & Corbin 1990b). Hence, the adequate sample size is reached at the theoretical saturation, which can be best described as the point of minimal incremental learning because derived phenomena have been seen before. Eisenhardt (1989) believes that this number is reached by four to ten cases, resulting in four to ten interview cases (Eisenhardt 1989).

At the beginning of the research project the relevant sample were IT Startups in North America. However, very early during the research process it turned out that IT startups is a too general field of research and that a more specific on e-business startups would be more adequate, resulting in more significant and representative insights. Since Montreal (Quebec, Canada), as a very dynamic IT startup environment, is experiencing a boom in IT startups/e-business startups, it was chosen as the location for this research. Due to restricted financial resources and time limitations, traveling through North America was limited and thus most of the interviews were within the area of eastern North America, targeting Quebec, Canada. Also during the interviews it was revealed that investors play a very significant role regarding the research questions (success of e-business startups) and thus were included in the sample of interviewees. Since the whole entrepreneurial process is being researched during this thesis, co-founders could deliver the most relevant information from the startup side. At the investor side, every investor with decision-competency and –responsibility in the area of startup investment could deliver relevant information.

In total there were twelve startups and eight investor interviews, with an average duration of 38:45 min, making a total of nearly 13 hours of interviews. Details about the underlying sample can be depicted from the Figure 11 and Figure 12:

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Figure 11: Statistics I about the conducted interviews. Source: own design.

The acquisition of potential interviewees was processed mainly via personal contacts, referrals and official contacting ways, such as the website-contacting information. Also the networks of the investors proved very helpful for reaching co-founders of various startups. Furthermore local startup meetings and conferences, such as the International Startup-Festival 2013, were visited in order to build a network for acquiring potential interviewees. The acquisition process followed usually the following structure:

1. Initial contact (personal/email/phone) with project description and request for interview;
2. Feedback from potential interviewee (yes/no) including time, date and location
3. Meet up for the interview.

3.2.3 Questionnaire Structure

The questionnaire was semi-structured and consisted of four (for venture capitalists) and five (for startups) sections. The sections for the startups where the following:

Each section was continuously and regularly adapted to the interviewees and their answers as well as including insights from previous interviews. Two detailed sample interview guidelines can be found in the appendix.

3.2.4 Transcription Process

Every interview was recorded and fully transcribed. The transcriptions were 1:1 exact wordings of the conducted interview. The summarization method of transcribing was explicitly not chosen, since the insights about complexity of the phenomena could have been limited by inaccurate summaries. During the presentation of the findings from the interviews, the interviewees will be kept anonymous in order to protect the interviewees’ privacy. However, there will be parts of the transcriptions in parts of this thesis available in abstracted and anonymized form. Breaks for thinking followed by fill-ins, such as “ehm” “eh”, etc. or laughing noises were not transcribed. Also during the interviews, interview protocols were created, including insights, comments and further topics.

3.2.5 Triangulation of Data:

With their first publication of the GTM (Glaser & Strauss 1967) already mentioned that a data triangulation, which is embedded in the GTM, is crucial. In particular, this means that various sources and methods for data collection should be pursued during and in addition to the GTM. This results in a broader perspective on the phenomenon leading to an extension or verification of the findings. Since this topic is under-researched and very close to practice, other sources such as blogs of (serial) entrepreneurs and investors as well as articles and personal websites were used during the data collection in addition to literature and the interviews,. Nevertheless, before using a source the authenticity of the author and the quality of content along with the validity of the source were checked extensively. In sum, the following material and sources were used during this thesis:

1. Relevant literature (books, journals, reports, studies, etc.) regarding the research topic,
2. Interview-transcriptions from the conducted interviews as well as interview protocols,
3. Secondary data such as personal and official startup websites, blogs, articles, etc..

3.3 Data Analysis Process

The data analysis chapter describes the application process of the GTM as well as in particular the coding process used in this thesis. Furthermore, a conclusive quantitative overview is presented in the end.

3.3.1 Application of GTM

The research method in this thesis is the GTM. It is strongly based on the Straussian approach, however it does include aspects from the Glaserian approach as well. In particular the following tools were used iteratively: theoretical sampling until the point of theoretical saturation, interviews, open, axial and selective coding as well as theoretical coding, concept- and category building, triangulation of data, memoing and memo analysis. This was all conducted under the iterative use of constant comparisons. Furthermore, the literature review initially presented was very brief, as suggested in the Straussian approach (Strauss & Corbin 1990b). Suggestions from the Glaserian approach were mainly incorporated by having more neutral questions and leaving the theory evolve from data rather than forcing them into a structure (Halaweh et al. 2008; Glaser 2013). The following Figure 13 presents the GTM approach used in this thesis:

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Figure 13: Grounded Theory Method used in this thesis. Source: own design.

3.3.2 The Coding Procedure

The first step, the open coding, was done with the in-vivo style. For example, the sentence “[…] we were two co-founders, my partner and me. He is an engineer and I have a business background.” was coded with ‘Two co-founders (technical and business)’. In the next step, during the axial coding, codes with similar characteristics and contents like the previously mentioned, were summarized to concepts; in this case: ‘Team Structure’. Figure 14 and Figure 15 show the curve of theoretical saturation within this thesis. It can clearly be depicted that with an increasing number of interviews the number of new codes and concepts decreases and plateaus at 15 and 17 interviews, respectively.

3.3.3 Quantitative Overview

The following table gives a quantitative overview of the relevant coding and analysis facts.

Abbildung in dieser Leseprobe nicht enthalten

Table 4: Quantitative overview of research data.

4 Success Factors of E-Business Startups

During the data collection and analysis process, the interviewees noted various milestones that they had to overcome. From these milestones, as well as from the content of the interviews in general, six and seven respectively interrelating top-categories could be derived representing the factors that have a significant impact on the success of startups. Identifying these success factors and thus understanding the causes behind the phenomenon of success, enables respective entrepreneurs to focus on exactly those factors in order to increase the probability of succeeding. However, due to the seventh top-category “external factors”, this model does not guarantee the successful foundation of a startup. It rather diminishes as many risks as possible in order to prevent a premature failure due to reasons that could have been avoided.

4.1 The Evaluation and Measures of Success

In order to understand the upcoming success factors, it is important to have a unified perception of the concept of success. Since this thesis is highly practice-based, the relevant definition of success is to be determined by practice as well. Hence, before introducing the success factors in the next chapters, the following deals with the question of what does success actually mean in practice and when is a startup successful after all?

The meaning and definition of success can be divided in five criteria. The first being the most obvious one: reaching profitability (S_12, S_14, S_15, S_20, I_22): “The fundamental measure for me is […]: profitability, no matter what amount of.“ (S_15). Hence, the basis for profitability is that the startup is “[…] consistently generating positive cash flow and EBIDTA […].” (S_20).

Along with profitability comes the next identified criterion of success: being self-sustaining (S_14, S_17, S_18, I_5): “A (startup) is successful in my opinion when you […] do not need funding anymore.” (S_17). In particular, this means that no external money is required anymore in order for the startup to survive in the market, except for the revenues generated by the startup itself (I_5). Ideally, not just by new customers but also through repeated revenue: “Meaning, you have customers that use your product on a regular basis.“ (S_15).

Next is the impact of a startup on their environment (S_11, S_12): “I would say when you change other peoples’ life to a better.” (S_11). Profitability alone is thus not enough: “You can do something bad and be profitable. A company can be considered successful when it is not only profitable but also doing something good.” (S_12).

Following, the criterion mainly introduced by the investors is the exit (I_3, I_6, I_8): “Every quarter a company might do well and the next quarter they might hit a road block. So until you exit you can only talk about trending success. After exit you can talk about actual success.” (I_3). Instead, the effect of an exit could be generated for the investors by a huge growth in sales: “This means, the sales are so high, that you don't need to be bought anymore. The profit is so big, that it is enough to give the investors their returns on their money and still keep the company working.“ ( I_6).

Last but not least, there were some market-related criteria mentioned in order to be qualified as successful: “[…] You have to be annoying to others in the market. You have to hurt other competitors. When you cause harm then you are successful. When you are in the market and nobody cares, you are not hurting other companies, you are not successful.” (S_10). This is valid given the fact that there are other companies with similar goals. This also leads to “[…] people associat(ing) your brand with a specific market.” (S_18). Hence, a good reputation is another criteria of success: “ […] once you get a good reputation and you have sold repeatedly because people say ‘yes this works’, then I would say a Startup is successful. I would go with reputation.” (I_2). And the last and rather optional criterion of success has been identified with an IPO, going to the stock market (I_5, I_6).

Taking all these criteria into account, success for a startup means being a profitable, self-sustaining company without the need for further funding in order to survive, while having a positive impact on some people’s life as well as a significant role in the market. An exit or IPO are optional and further indicators of success.

4.2 Introduction of a Success Factors Model – A Six Step Approach

The abstract version of the model in Figure 16 shows that the derived success factors can be summarized in six internal and one external top-category: Preparation, Team, Idea/Product, Financing, Targeting and Execution as well as the External Factors.

Each of these six top-factors plus an additional external top-factor will be explained in detail in the following chapters.

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Figure 16: Abstracted Success Factor Model

Each of these top-factors consists of various concepts that were derived and repeatedly confirmed during the interviews. Figure 17 gives a complete overview of the concepts that form each top-category. The numbers in brackets represent the number of quotations during the interviews referring to that specific concept.

4.2.1 Step 1: The Preparation

One of the top-factors of success for a startup was an adequate preparation. Based on the interviews the main concepts to be discussed under the top-category of preparation are: the business plan, the market research and analysis, the network, the partners as well as legal aspects/intellectual property.

Business Plan

Traditionally the business plan represents a form of guidance and estimation of the whole business for the founders and potential investors before actually starting the business. A complete business plan consists of many different aspects such as market, vision, concept and background, product/service, business strategy, financial projections, management team and many more (Reuvid 2011). However, in today’s very dynamic environment the business plans actually used in practice consist usually only a financial plan (S_20, S_18). Also the structure is mainly very simple: slide-based or some strategy- and financial decks instead of a complete written plan („ I am not a big fan of written business plans, because you iterate them and two months later you can throw it in the garbage. “, S_10) (S_13, S_17, S_10, S_21). In addition to understanding the main issues of the business (such as market and competitors), the business plan is mainly prepared for funding purposes by the interviewed startups (S_17, S_18, S_19). Thus, some startups did not even write a business plan (“We never sat down to write a business plan, we (my co-founder and I) constantly talk about everything we found out”, S_16) especially if funding was not aimed for (S_12, S_14, S_15, S_16). Nevertheless, especially for first-time entrepreneurs a business plan can offer an orientation for the beginning (S_18).

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Legal Aspects / Intellectual Property (IP)

Legal aspects (such as intellectual property protection) are an often-discussed topic. Some interviewed startups did not care about them at all: “No no. We didn't care. We figured if somebody sues us, let them do it. We figured if we would get sued, it would probably be worth trying for.” (S_20). However, legal work becomes increasingly relevant with time passing by (S_12, S_16). In particular, they become crucial when funding is supposed to be happening: “As soon as we got the term sheet from the VCs, that's when we started looking a lot into legal aspects. We paid a good deal of attention to that and that was important.” (S_17) (S_13, S_10, S_12). Before, it is not necessary to put a high priority on legal aspects: “Basically, thinking about trademarks, patents, etc. is very very defensive. And a Startup first is built on offence or specialties. When you start trademarking, it means you already want to invest 5-10k in trademarks, that is a big amount for a defensive move in the beginning.” (S_13). It is rather recommended to structure the first round of official funding – no matter what amount – in a way that for the next financing rounds the startup does not have to care about legal work again (S_10). Also legal advices can be helpful for e-business startups particularly in the following subjects: technology-rights staying in the company with the responsible employees leaving, as well as considering the misuse of traffic, pay-per-click and credit-card-fraud (S_16). Other than protection cases like that, standard forms in the internet are usually enough (S_11, I_4). Nevertheless the importance of legal work depends much on the industry. For e-business startups, such as e-stores and e-marketplaces, it is not as important as for IT startups that produce software as a product. There, in order to handle questions such as licensing agreements, IP, etc., it is very important (S_19, S_21, I_6).

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Market Analysis

All the interviewed startups did their market research by themselves – meaning no external sources such as consultants were hired –, considering mainly two sources (S_17, S_15, S_19, S_20), S_12, S_14; S_10, S_16):

1. online research,
2. talking to potential customers to get a sense of the demand.

In most cases the online research was enough to have an estimate of whether the idea / product would have potential: “You can read Forrester studies, the amazon annual reports, eBay annual reports. You read lots of marketing case studies. There is tons of information out there in the net. You can get pretty much everything.” (S_20) (S_16, S_12). The advantage here is especially that this works very fast, cost-effective and transparent (S_19).

However, in the cases where an online research is not always revealing enough relevant information, such as sometimes in the case of a new e-marketplace, talking to potential customer has proven the most efficient market research tool: “We looked at the market. But what does the market tell you? E-commerce is growing bigger etc. I think the most important research was once we were pursuing the idea and we were doing focus groups, understanding what [the customer] wants.”, (S_17) (S_10, S_12, S_14, S_15,).

The last source of market research was actually building the product and seeing if you do get customers or not (S_12, S_14, S_15).

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Network

Network is one of the most influential success factors of startups. Advices through mentors and other experienced people are critical for success, especially if the entrepreneurs are not serial-entrepreneurs (I_2, S_15). A personal network can help with all kinds of challenges, such as legal advices from people who have been in similar situations or the prevention of simple pitfalls (S_11). Although a network can be used for general guidance, often the personal network is the first address of contacting when looking for a solution that could not be handled efficiently by the team themselves: “[…] (a friend) had worked for a big finance consulting company and thus he could give us advices and templates for our revenue generation” (S_16). Also another possibility of using the network is a regular connection with other like-minded entrepreneurs, who have been through the same challenges in the same field, being able to give input on relevant metrics and other challenges: “[…] that learning curve (due to that network) really helped to prepare our thought process, identify common challenges and probably more important than everything: if one party had solved one situation or problem, in most cases that solve was transferable into other markets. So that was really incredible. I don't know if we would have been successful hadn't we not have had that.” (S_20), (S_18). It is particularly helpful to have an extensive network when starting to market the product and scale. Hence, the importance of a network increases with time (I_2, S_5; I_22). Agencies or consultants are often expensive and not suitable for the needs of a startup: “And even when I was looking for help, I couldn't find proper sources to find what I was looking for. There were not very experienced people available. We tried a few agencies but they were pretty expensive and in the end the advisors were given us advices suitable for bigger businesses or they didn't suit our needs at all.” (S_16). The personal network is usually built through previous jobs, friends and family as well as networking events (S_12, S_16).

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Partners

Key partners, such as suppliers (relevant e.g. for an e-Store) or contractors (e.g. in an e-marketplace) also play a role in the success of a startup (S_12, S_13). However, depending on the kind of e-business startup, the relevancy of partners for success varies. For an e-marketplace for example, where customers are connected to all kind of service contractors, the choice of contractors and or partnering companies can be crucial and thus needs a specific attention: “[…] by today, they are all hand-selected by us.“ (S_17) (S_18). Nevertheless, for all different kinds of e-business, it is important that the partners fit into the vision of the startup and if possible provide some sort of image-boost: “They were big brands and did fit into our vision. String names helped us to become strong” (S_16) . The choice of partner might directly influence the performance and thus could be crucial. Various factors such as internationality and ability to provide when the startups is scaling should be considered (“We chose them because they are global and the best that we could think of.”, S_15).

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4.2.2 Step 2: The Team

The data collection and analysis process clearly revealed: the most important key and success factor for a startup is the team. But what is it in the team that actually leads to success? This chapter presents the most influential and important concepts evolved in the interviews within the top-category of the team: team structure, team experience, team qualities, recruiting, full-time commitment, team motivation and management. When talking about the team in the following, the founders and the very early on members of the startup are meant. Other members of the startup are referred to as “the employees”.

Team Structure

The team structure is crucial for the success. In e-business startups it is essential to have at least two co-founders that are complimentary – meaning one co-founder with deep technical expertise and one with business administration and management expertise: “ […]one technical and one business guy are necessary as co-founders. Because if the marketing guy is trying to program in the first six months, that is something different than an actual technical person.” (S_10) (S_10, S_11, S_12, S_15, S_16, S_21). This diversity was identified as critical, leading to a clear division of the tasks (S_21). Underestimating the technical expertise and achieving that just on the employee level or even outsourced most probably leads to difficulties (S_10, S_11).

Also the pre-founding relationship between the founders plays a role. Most of the successful startup co-founders knew each other before creating the business: either from their private or previous work life: “We worked before three years together in another company. So we were used to work together and built a relationship before we jumped into a Startup. So it is pretty important to know your partner and be complimentary.“ (S_10). A trustful and reliable relationship forms the basis for starting the challenge of a new business together. Most co-founders declared their relationship to the co-founders as an essential success factor (S_10, S_12, S_13, S_16, S_17, S_18, S_20). These relationships usually are built while working together in other companies, but also often through similar paths in the past, such as being roommates or visiting the same high-school or business school in university (S_13, S_16, S_17, S_18, S_20). Many of them even were co-founders together before and declared that experience as significantly helpful for the next startup (S_10, S_12, S_13, S_20).

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Team Experience

In addition to the team structure, the previous experience of the founders contributes to the success of a startup. Having worked with the co-founders together before has already been mentioned as a catalyst. The experience as a founder – no matter if failed or succeeded – is particularly success-supportive: “We knew, especially due to our experience with (previous company), how to acquire subscribers e.g., we knew online-marketing quite well “ (S_12) (S_11, S_12, S_13, S_18, S_19). Making mistakes in previous attempts is an actual success factor (S_13, S_18, S_20). It embraces the willingness, grace and fear of failure, which functions as an enormous driver and becomes a success factor: “After six months working on (previous startup) we decided that it was a terrible idea. So we kept trying for something else. That was a major critical point.“ (S_11).

However, it is not just about the experience as a previous founder. Many skills that are needed in the everyday business of a startup and other industry-related skill-requirements can be acquired while working for a big company for example : ”I worked in investment banking, so I knew financial statements very well. And when you come to a business as an entrepreneur and you have already done all those things, it really helps you.“ (S_12). Especially in order to avoid previously made mistakes, such as wrong calculations and supply chain or strategic issues: „[…] we (the co-founders) had 5-7 years of history online. So we already had experience about the margins to expect“ (S_16). The experience in a big company can also be very influential for the definition of the business itself: “Because working for a large company gets you to learn those things and it could also give you an idea of what these large companies are missing. What part of the market that large company is not addressing that you can later address.” (S_12).

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Team Qualities

There are various qualities that were mentioned as contributors and drivers of success for the startup and the team. The following Table 5 gives an overview of the most influential ones. As the most important ones were the following identified: visionary, being stubborn, perseverance, confidence, fast-learning, all-rounder abilities and the ability to spend money adequately.

Recruiting is identified as one of the biggest challenges for startups, since good people/ team members are identified as a key success factor (S_12, I_5, S_19, S_10, S_20). A good or bad hire in a startup impacts the business significantly (S_10, I_3). Often startups provide a friendly and dynamic environment, however due to the high risk and the comparably lower compensation it is not always the first choice for top-talents: “When we first started it was a combination of who would agree to work for a ridiculously low wage. So typically it was first-year kids out of school, recent graduates. And people that we knew before.“ (S_20). Main sources of recruiting in the beginning are previous jobs and personal networks of the founders (S_10, S_19, S_20). However, for specific key positions headhunters are sometimes used as well (S_19).

As a founder choosing the right people is very challenging. This is due to many reasons. One of them is the challenging identification of the cultural fit of that person within the to-be-developed team: “it is really hard to understand who that person is, both from a skill stand point (because you don't know what skills they need, you are just starting to hire someone who knows those skills) and I think also from a cultural standpoint. We learned the hard way that cultural fit is such a huge huge part of how successful someone is in your team.” (S_17) (S_13). While at the beginning more generalists and all-rounders are needed who are flexible in what they have to do in the startup, the more time passes the more specialists are needed: “At first, where you have zero collectivity, you need hungry wolves. Guys and girls in the morning are gonna code and in the afternoon are gonna do the boxes for shipping. And that has to be what they want.” (S_13) (S_20). In order to be fully-committed to the startup the employees need to identify themselves with the vision of the startup (S_13, S_17): “It has always been: attitude over aptitude. I will take somebody who is committed and involved over somebody who is a genius and thinks 'what can the company do for me?” (S_20).

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Full-Time Commitment

Many founders identified the act of deciding to work full-time for the startup as a big challenge and milestone: “[…] going full-time meant leaving everything else behind. There were many other challenges since then, but that was the hardest. Before it was still risky, but the risk was restricted. “ (S_14) (S_11,S_21). Full-time commitment is a big step for the founders, however, often founders struggle with the decision. Often an event such as funding or first customer/pilot clients were needed in order to go full-time: “We had a pilot client before we left our full-time jobs and demonstrated success with them before […] we started full-time.” (S_21) (S_14). However, a half-hearted commitment can destroy a high-potential startup: “If you really believe in your project, this does not depend on our financing. You go full-time before trying to raise money.” (I_8). A fully and highly committed team in its entirety is absolutely important for the challenges of a startup (S_20). The core of people needs to be in a full-time commitment (S_16).

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Team Motivation and Team Management

Another challenge the founders and leaders of a startup are facing is the management and in particular the motivation of the employees: “My biggest challenge was growing the team; keeping the people motivated and at the same time working hard”. (S_12) Thus it is not just about recruiting the right people it is also about making them work efficiently (S_13, S_19). Finding a balance between a relaxed, friendly environment and a hard-working ambiance is particularly challenging for a startup: “It is almost like that a certain level of stress in an organization is healthy. You can not just have everyone having a good time, relaxing and going home when they feel like.” (S_12) (S_13). Due to the small size and thus very personal ambience, the founders have to create “[…] an environment where people can come and talk to you, where they can say what they feel. Knowing that people have different opinions and sometimes those can be better than yours, and being able to listen and be open to that is important.” (S_17). They need to share the vision in order to work in alignment with it, a personal bond between the employees and the founders especially in the beginning is important (S_17). Not having a very hierarchical management can be helpful for that (S_15).

A “creative pride” (S_15), meaning the feeling of working for a great product that is seen and recognized by others as such, functions as great motivation (S_12, S_15). Managing the team becomes more difficult the more time passes by and the more employees get hired: “At first it is easy to grow from like 10 to 20, 30 people - because the culture becomes very tightened and you are still very involved in everything. But when you reach 40,50,60 the biggest challenge is to keep the same speed (of development) all the time.” (S_13).

Another motivational factor and incentive for the employees can be to give options and annual bonuses based on the companies’ performance: “We say ’if we succeed, you all get a piece of the cake’." (S_10).

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4.2.3 Step 3: The Idea / Product

The core of each startup is its purpose, the idea and product it is providing to the environment. In the following – and the thesis in general – any service that a startup might offer, such as providing a marketplace for exchanging any kind of information, might also be synonymously referred to as the “product”, despite the fact that it might not be an actual “physical” product. This chapter presents relevant facts about the idea generation as well as required product specifications for a successful startup. Also part of this chapter: idea sharing as controversial issue, relevance of feedback, technology relations as well as portfolio expansion aspects.

Idea Sources

There are various methods and theories about how to generate a successful idea. But how were the ideas that led to actual success in practice generated? Many of the ideas had their origin in the founder working for a big company and discovering a niche that is not covered by anyone in the industry: “[…] Working for a large company […] could also give you an idea of what these large companies are missing. What part of the market that large company is not addressing that you can later address.” (S_12) (S_14, S_21). Another source of ideas common in the successful startups is to get inspired or simply transfer proven ideas from one market to another (S_12, S_16, S_18): “In this particular case […] the idea was something that we saw happening in the US. […] Because sometimes you see a model and you can tweak it and adapt it to a local market and you can have a success story.” (S_12).

Nevertheless, the active search for an idea is often more than difficult. Yet, the most promising way when actively looking for an idea is to talk to people: “[…] we started with meeting a lot of people and one person we met was from (anonymized) (mentioning their needs). And we adapted our system to his needs and it became a constant development project based on customer wishes.” (S_11). Usually many iterations of the initial idea are necessary till the actual idea is ready to be launched (S_13, S_17). Also it should be considered that money as the main driver is not only not enough, but also the wrong motivation since earning more money with a much higher probability could be earned in other places than startups (S_14). After all, it is not entirely about the idea as many might think: “[…] later on, you realize that execution is truly 99% of it and the idea is 1% of it.” (S_17) (S_12).

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Idea/Product Specifications

One thing that builds the basis for most of the interviewed companies was to find a product “[…] that solves repeatable problems and has many customers. And making it as simple as possible to use. “ (S_21) (S_10, S_15). However, even when an idea/product was generated that solves an actual problem in the society, the founders need to find out if this problem is also painful enough. Solving just a small problem without a large segment is a mistake many entrepreneurs do (I_3). Usually, many iterations of the product are needed before it is actually clear what exactly the product is and who it is addressing (S_10, S_15). The value of the product has to be clearly identified by the customers. For example if there is a platform or e-marketplace available, is the value simply the availability of information of how the participants can contact each other? Or is there another value-added step, such as the evaluation of the sellers/contractors for the customers in order to support them in their decision-making process of e.g. buying a product (S_10, S_17).

Also it is recommended that if an e-business startup offers a product in a specific region that has potential to be expanded, to iterate and improve the product as much as possible and when it is stable, transferring the successful model to another region: “We decided to make a good job in (anonymized) and execute it in an incredibly good way (and later on expanding to other regions)”. (S_12) (S_10, S_16, S_17). Also it would be preferable if the product offers possibilities in variation, creating a potential to expand towards other products when reached the saturation stage (S_10, S_14, S_17).

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Technology Relations

Many startups identified problems and difficulties with technologies as a major challenge: “We were a small store and at that time the only available technologies were mostly developed for bigger businesses. We could have went with SAP or other Top-10 e-commerce platforms, but they would not have met our needs and were really expensive.“ (S_16). A fundamental knowledge of technology is identified as critical (S_20). The evolution of technology might become a danger for e-business companies if they don't adapt and keep up with the time (S_15, S_16). One big technology-related issue, especially for e-commerce/e-stores, is the credit-card fraud for orders: “We have here a big problem with fraud. People will try to buy (expensive) products with stolen credit cards. The system we had couldn't deal with fraud properly, so we had to develop our own features that would fit with this bigger platform.” (S_15) . Furthermore, it is the technology field, that promises high returns: “Also, from a return standpoint, big gains have traditionally come from technology, resources and real estate.” (I_2)

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Idea Sharing

Telling other people about the idea is often a difficult decision. Many entrepreneurs are concerned that sharing the idea could result in somebody stealing and executing it themselves: “Usually I am not scared about telling people about the idea, but in this particular case I was. As an entrepreneur you are always a little bit paranoid and you think other people would be able to do the things you would do.” (S_12) (S_14, S_17). However most of the founders were pretty open with their ideas and even believed that it is actually beneficial to share the idea with other people (S_10, S_11, S_13, S_15, S_20): “I think you have more to gain by telling the idea due to the feedback, than you gain through hiding your stuff.” (S_10). Preventing yourself from the feedback and reaction was even interpreted as an actual mistake by some founders: “I did that mistake with my first Startup which failed but not this time anymore at all.” (S_11). Furthermore the fact that it is not really about the idea but about the execution was quickly realized (S_12). Somebody stealing the idea and actually executing is extremely rare: “They would have to be on the mindset to just get a good idea to get started: have the money, have the time, have everything ready to get started. That is pretty rare.” (S_12). It is also fact, that the idea – if successful – most probably will be copied anyways should not be of concern, since the real challenge is the execution in the first place (S_17).

Likewise, if funding at an early stage is aimed for, the sharing of the idea is even necessary: “We realized from the beginning that we weren't going to bootstrap it. […] So if a casualty of that was secrecy, we weren’t going to keep it a secret for long anyhow. So we were never particularly scared of (sharing the idea).” (S_20)

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Feedback

All kind of feedback, such as from potential and actual customers, is another essential ingredient for success. Feedback of market participants can function as some sort of proof-of-concept (S_15, S_16) and even be the trigger to go full-time or build the company (S_10, S_14): “And we went to potential customers who I knew from my previous work life, just to test the idea, show them and get feedback. And their feedback was ‘wow, this is new, this is amazing. We want to have it!’ So we decided to set up a company, raise money and recruit a team.” (S_19). An even more important function of feedback is the use of customer’s feedback to improve and iterate the product continuously: “We just went ahead to market early and got market feedback instead of thinking in our head and making analyses etc. all the time.” (S_10). Thus, being open towards customers’ opinion towards the product is absolutely essential and necessary: “Trying to do that as many times as we can, was important.” (S_21). (S_10, S_19, I_22).

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Portfolio

Often startups struggle with the fact of just having one idea/product and that is it. Expanding the portfolio is a solution to that: “You have to expand the portfolio. If you don't expand then you are a one hit wonder and your exit is gonna be small.” (I_3). However, an expansion has to be very well planned after having successfully marketed the first product (I_5; S_10, S_16). With an expansion/diversification of the product portfolio new sources of revenue can be generated or even new core businesses created: “[…] Sometimes you diversify into something that could ultimately become your core business. You never know. We are always looking for new business opportunities here. We never stop doing that. Never. I think you run into a big danger if you get to monotonically focused.“ (S_20). Another possible side effect is that the total risk gets diversified too (I_3, S_20). Nevertheless, some investors see the product portfolio expansion critically, since they see the risk of losing focus and not executing well anymore (I_22).

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4.2.4 Step 4: The Financing

This chapter deals with the most important aspects of the top-category financing with direct influence on the success of a startup. In addition to the financial discipline, the concepts of raising money/funding, the investment type, bootstrapping / 3 F’s, revenue and profitability as well as governmental support are presented and discussed briefly. Details about the decision-making process of venture capitalists/investors as well as how to get a positive vote of investors can be found in Chapter 5: Venture Capital Financing.

Financial Discipline

All of the successful startups interviewed worked in a very disciplined way in terms of spending money. Identifying “running out of money” as a big challenge (S_11, S_16), cost control and disciplined spending are necessary. In particular this means the obvious sounding fact of being enormously flexible and “[…] be careful with every penny […] spend.“ (S_16). But how exactly does that work? One proven measure is to have caps for spending: “I made sure that the incremental revenue we would have due to (investment), would exceed the costs we have with (investment).” (S_12). This is particularly possible for the area of e-business. It is possible to track every cent invested in the market (S_12). Costs have to constraint a certain percentage, for example: “[…] sales can't be more than X percent, IT can't be more then Y percent. There could be amazing things we could do with IT, but if the ROI[3] is not clear, than we […] won't do it. We control costs very carefully.” (S_12). The ability to spend money appropriately is absolutely crucial (I_6, I_22). Many companies burn their cash far to quickly in order to achieve a high growth very early on: “It is easy to hire ten people and spend a lot of money. […] But […] spending really the lowest amount of money for every account, to prove our concept. That was a challenge.” (S_10). Also the financial planning needs to be very detailed, especially with regards of getting funded: ”You have to have a good idea of what amount of cash you need to get to an exit or self-sufficiency and the existing syndicate has to have the cash to support the company until it gets there.” (I_2).

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Raising Money / Funding

Raising money has been identified as a key milestone on the way to success by the startups (S_17, S_20, S_21). For many it was on of the most influential success factors: “[…] The fact that we were able to raise capital and support our enormous R&D project basically; […] And I keep going back to this: our ability to raise money.” (S_20). The earlier the startups had a proof-of-concept in e.g. form of early customers/clients, the sooner they were able to use that to get financing : “We raised money right at the gate, that was important. We had a pilot client […] and demonstrated success with them before we even raised any money. That was a catalyst for raising capital.” (S_21). The main purpose of the funded money is usually to facilitate growth and keep up with the ongoing expenses such as hiring additional people, marketing costs and other costs of operation during the growth period (S_12). Also sometimes the raised money can function as a security for the startup in order to enhance some risk: “[…] when we caught the investment from the outside, we never actually used it. In the sense that we got the investment, put it in our bank and the only thing that investment gave us, was comfort to go out and say ‘lets increase our marketing expenses from $ 50.000 to half a million’.” (S_12). Hence, the risk of running out of money is reduced by the investment.

However, raising capital comes with risks as well: “[…] a lot of founders get screwed over because investors come in, they got conversions, convertible notes, etc. and two years down the road, the founders are left with 5 % of the company.” (S_10). The lack of education and knowledge in that area could become a threat for the founders (S_10, S_17). Appropriate and extensive advices in the process of raising capital are highly recommended: “What is the proper valuation of the company? So (the founders) get screwed over by VCs who negotiate all day and know every trick. And founders, just because they need this money, they accept terms that are not necessarily in their best interest.” (S_10) .

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Investment Type

The type of raised capital affects the operations of a startup significantly and hence its probability to succeed. The theoretical advantages and disadvantages of the various investment types were already discussed in chapter 2.4, but how is it in practice?

“At first there are the 3 F’s - Friends, Family and Fools. […] After that you can get money from the government, entrepreneurial loans, etc. And after, once you developed your model and your alpha-version, […] you know you have enough data points to prove ‘hey, I am going to see a VC’. (S_13).

While this description might summarize the order of investment appropriately, often there are still business angels in between or even instead of the VCs (S_10, S_19): “[…] we just went to angels because the amount we needed was too small for VCs. Also it was too early stage.” Most startups prefer to work with business angels rather than with VCs if the amount needed can be provided: “With individual investors it is much easier to manage than a VC that comes to the board, paper work and all that.” (S_10). This is especially due to the nature and business model of venture capital financing: “ […] venture investors are in the business of making money, so there is a lot less flexibility with VCs than with angels. So I would try to hold on to not involve VCs as long as possible.” (S_21). Having a VC on board is different than having a business angel. Especially at the seed stage, where the business is still being defined, it could have a major influence which type of investor is present: “I think that at the seed stage I would trust the entrepreneur more. Because a lot of the decisions we made were not necessarily the most sophisticated business decision, but they were always for the customer. […]” (S_17). A VC with the target of creating scalability might have redirected the focus: “If (our investor) was super involved he would have advised us to do things that were more business-oriented and maybe we would have made wrong decisions. I think once you have your vision in place, then VCs become more important and valuable, since they can say ‘ok now you have your foundation, these are all the things you need to scale your business, to get profitable’.” (S_17).

Nonetheless, with business angels and especially with VCs there comes crucial knowledge and network for the startup: “A VC, who gives you constant guidance and puts you in touch with resources that you need as well as gives you access to a good network, I think that is the best choice.“ (S_15). Hence it is obviously not just a decision about money but also about people the founders want to have involved in their startup: “The quality of the people is extremely important. Because you are getting married with them for a while. And if they drive you into a wrong direction the shareholders, your capacity is lost. So the quality of the people and the relationship we have with them was and is key. And the networking and capacity to help is a by-product of that. “ (S_19). Within that context the term “smart money” can be used to describe investors with a prior track record in a similar business model, forming a significant competitive advantage for the startup: “[…] he was to able to provide us with two things. One his own personal ideas about how we should exploit the business. And two, probably as important, he connected us with a network of like-minded entrepreneurs who had done the exact same thing in another market.” (S_20). Taking the advantages and disadvantages of the investment types into account, a startup needs to be aware of the explicit needs and expectations they have on an investment. “Balancing the expectation of VCs versus what is best for the business” (S_17) is a challenge for startups that they should be aware of when seeking financing.

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Bootstrapping / 3 F’s and Governmental Support

Nearly all of the interviewed startups bootstrapped their startups. Although this is not directly a success factor, the act of bootstrapping a company with savings and no salary represents the boundless commitment and belief that the startup will become successful: “At (the seed) stage I want the founder to make a real sacrifice for it (vs. having a good salary and a lot of upside). For example (anonymized founder name), when he started this, he agreed to have no salary for at least a year. He also put his own money, his family’s money in it. So to me this guy was really aligned, committed.” (I_5) . Sometimes the bootstrapping phase takes a long time: “No, we didn't take any money. Just our own savings. And we didn't take any salary for the first two years.“ (S_11). This kind of commitment and strong will is not only a good indicator for investors but also for potential partners. Furthermore, the relevance of full-time commitment was discussed earlier in Chapter 4.3.

After bootstrapping the first and easiest source of money is government support. Grants from the government functioned for many startups as an early and very supportive step: “[…] we did have the governmental support packages, which was very helpful for us.” (S_11) (S_13, S_14). In addition to the government grants the money the “3 F’s” offer functions as the second source of money in the beginning for most of the startups: “At first there are the 3 F’s. Basically crazy people. But that is ok, you need that.” (S_13) (S_14, S_17, I_5). Although 3 F’s-money comes with a certain psychological burden of loosing family and friends’ money, this forms offer some sort of security for potential investors later on: “I love that, so I don't have to question his motives or be scared that he might leave in a few months.” (I_5)

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Revenue and Profitability

In order to generate new revenue streams, role models can be inspiring: “We reviewed the (anonymized), they are a public company so their financial statements were online. […] If you look at their performance you see what kind of margin they have, what kind of net profit they have: For us that was one end of the spectrum.“ (S_16). Other than that, especially if data is not available or the startup is creating new market opportunities, individual financial modeling forms the alternative for calculation referring to revenue streams: “Financial modeling[…] That is one of the skills that I would advice any entrepreneur to acquire, to create quickly financial models on your excel spreadsheet. They are not difficult to do. I basically wrote it down and made assumptions. Number of subscribers, number of buyers, etc. it gave us an idea.” (S_12).

The startups that reached profitability often declared it as their biggest milestone (S_10, S_12, S_14). However – and especially in e-stores/e-commerce – it is very difficult to reach: “It is not that difficult to build a large e-commerce business – (but) it's nearly impossible to build it profitable.“ (S_20). Again, similar to the financial discipline, an obvious but nevertheless important key factor is the right focus: “And the reason we are profitable, the way we run this company is always with the focus on the bottom line. “ (S_12).

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4.2.5 Step 5: The Targeting

During the top-category targeting the startup positions itself in order to execute precisely in the direction it wishes. Targeting deals mainly with the interface between the startup and the customers, such as marketing and customer acquisition, but also with internal topics such as business model, focus and culture of the company as well as issues regarding the taxonomy and outsourcing.

Business Model

The business model of the startup decides how and if the startup will earn money or not. Depending on the business type, the business models differ from each other very much and thus it is difficult to generate some generally valid insights. However, there are some similarities between the startups that make it possible to derive some insights that build a basis for success. One insight is that the founders of a startup need to be open towards a constant evolving of the business model (S_10, S_13, S_17, S_20, S_21, I_22): “Business model – […] you need a really good foundation but this will evolve and needs to evolve too.“ (I_5). In nearly every startup the business model evolved over time and was adapted to circumstances that were not identified before the launch. Not being willing to adapt to those changing conditions could result in failure: “When we went in with a basic supposition, assuming that these were the core business metrics, some of them proved to be right, some of them proved to be wrong. And when a core metric proves to be wrong, you either have to adapt the business model or retro fit the business model to a new metric. That happened hundreds of times and continues to happen today!” (S_20).

It could be derived that the subject of biggest adaption and evolvement was the pricing and revenue model in particular: “What changed a lot is the pricing model. We played around a lot with the pricing model.” (S_10) (S_13). Modern monetization models are increasing in importance (I_22, S_13). In particular, the pay-per-performance model was favored by most of the successful e-business startups: “[…] we are compensated according to the results that we produce (and that) […] has partly led to the success of this company.” (S_12) (S_10, S_17).

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Focus and Culture

The focus and the culture of a startup define its everyday work. Within this concept various advices that deal with issues such as where the effort and resources should be concentrated are presented. Topics, such as financial discipline or flexibility were already discussed earlier and thus are not subject of detailed presentation under this category again.

One major success factor, especially in e-commerce/e-stores, is the “[…] primary focus on data.“ (S_20). Always monitoring, keeping track and adapting strategy, measures and expenses on data (more details about on which data to focus can be found in chapter 4.8) is absolutely key (S_13). Business intelligence tools are necessary and also require relatively high investments (S_12). In general, a startup needs to create the ability to focus on particular issues. The available – and usually scarce – resources need to be maximized and focused on very specific problems (I_4). The bottom line should always serve as a guide for the direction of the focus (S_12). However, it should not be forgotten that a major part of the bottom line is a result of the customers and thus providing value for the customer should always be the strategic main focus: “[…] no matter what we did, was focused on […] the core customer. There are so many Startups that start and try to take advantage of the business model or a supply-chain-structure, or whatever. You don't need to be as sophisticated and have all these crazy business operations. If you know your customer and you are finding value for that customer, you will find success.” (S_17).

Referring to the culture of the company a disciplined approach with an adequate speed can be recommended. It is important to not skip milestones and try to rush to the market inappropriately quick (“(important is) not going too fast and making sure that you reach each milestone. In particular, reaching each milestone BEFORE going to the next one.”, S_10). Also the previously presented concept of “financial discipline” forms an important part of the culture of the company. A startups needs to create a personality, not only for internal reasons but also for external communication: “With our communication on Twitter, Facebook, YouTube, we do have a specific personality and culture. I think that this is another reason for our success.” (S_16). And like any other personality, startups comes with strengths and weaknesses, and it is important to accept those and work on them: “[…] if you accept the quality characteristics of the business and the concentration capabilities in the business rather than the size of the business, then you will be happy.” (S_15).

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Marketing and Customer Acquisition

In e-business the success of a startup depends mainly on successful customer acquisitions (S_12, S_18, I_6): “[…] we realized very quickly […] to be successful you needed to have an audience. In order to have that audience in our particular case, it meant to acquire as many subscribers as we can.“ (S_12). In particular, it is about low-cost customer acquisition: “ […] customer acquisition is key; low-cost-but-high-quality customer acquisition” (S_18). However, in e-business startups it is important to differentiate between subscribers and clicks and actual customers: “[…] You can use a contest and offer a trip to the world and get 500.000 subscribers to your basis but of which only 5 are going to buy because most people will give you a fake email-address. Our focus has always been on acquiring buyers.” (S_12). Also, nearly as important as acquiring new customers is to keep the current customers loyal :” And most importantly: keep customers with you. Not just trying for a year but keeping them is THE most important factor” (S_11) (S_17) .

While customer acquisition is the goal for all the marketing activities, each marketing expense needs to be tracked carefully: “If you are acquiring customers and you are paying x amount of dollars to acquire them from yahoo, google, etc. you can track those users. You see whether they are buying or not, how much they are buying.” (S_10) (S_12). The tools used most for tracking were Google Analytics and RJ Metrics (S_16, S_18). This tracking over time enables the startup to determine the optimum amount of money to invest and also where and how: “It is a very mathematical equation, it is not a guessing game. (S_12).” Furthermore, there are indirect effects of the marketing that should be considered too. A good brand impacts the customer acquisition costs too: “[…] (people knowing our brand) has tremendous impact on our customer acquisition costs. Because people come in and we didn't pay for them to come. They just heard of us.” (S_13).

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Taxonomy and Webpage Relations

The structure and elements of an e-business startups’ website have a direct influence on the customers: “Just changing the colour of the submit-button can have an impact on your conversion rate. “ (S_10). Tools such as Optimizely[4] are used to do A/B-testing[5]. Often a complete redesign of the front-end is necessary – and should not be hesitated to do: “ […] we did three complete redesigns within twelve months.” (S_10). Hence, the concept of constant iteration has to be applied to the website as well with high dedication.

The taxonomy of the website is often a mix of analysis and intuition: “(the structure of the website) is based 50% on intuition and 50% based on analytic processes. We have invested very heavily in business intelligence tools that help us […].“ (S_12). Furthermore, other websites with similar concepts function as role models: “We took three guys that we really liked, that we felt they knew what they were doing and our website was a combination of the best of these three sites. […] But even now, when we decide we want to launch a new feature, we look in the market, we see something that we like and we find inspiration in the work that they do.” (S_20) .

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Inhouse vs. Outsourcing

Inhouse production as opposed to outsourcing is a variable business option. While at the beginning it can be an advantage to outsource the development of the website (“We were doing that ourselves, we quickly realized it would acquire a lot of manpower to do this appropriately. So we went to another company that provided us with a system that enabled us to do what we wanted to do […]”, S_12), many companies rather identified the fact of having internalized everything as a competitive advantage, especially when scaling: “[…] Building the internal competencies was very important too. For example, at first we outsourced our web development in the first six months in 2011. We realized very fast it was very big mistake to do, because if you can define your core competencies such as technology or shipping, you should own them.” (S_13); “And we built all of our capabilities internally, so we never outsourced. That turned it into a huge advantage from a cost point of view.” (S_20). However, since this is very business-specific, some companies might struggle with the decision of whether to outsource or not, and if yes: which competencies after all?

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4.2.6 Step 6: The Execution

After the team and product are ready and the targets of the business are set, it all comes down to the execution. While the execution is a comprehensive top-category across all other top-categories, the most influential concepts are presented in this chapter. The timing and pace of execution, the growth, the scalability, the expansion and internationality of the business, supply chain and logistics as well as relevant key performance indicators and an accompanied risk management.

Timing and Pace of Execution

The timing of a startup is absolutely critical (S_17). A balance is required between executing fast in order to gain a first mover advantage and not launching to early without being ready for it (S_10): “[…] I would say the biggest challenge is to execute fast. We had a good idea, ahead of competition. So the challenge is to be very fast on the market, to execute. And to keep this first mover advantage that we still have today.” (S_19). However, the part of not being ready yet can often be neglected. Launching the website fast shall have priority, given that the fast execution is a success factor :”(One success factor was) being fast to market. We launched in like two months. We went to the market without a thousand scientific research.” (S_10). However, it is not just about launching the website. All aspects need to be executed fast, the development, the product and technology definition as well as raising money, all of that resulting in a fast market development (S_19). Especially with regards to the competition: “The speed is really the most critical issue in the e-commerce domain, where competition is quickly worldwide. There are no borders protecting you, which enables you to be active from scratch over a market with four billion potential customers. Which is amazing, but it also means that you may face competition from any place in the world.” (S_19). Nevertheless, it is the timing factor that enables many e-business startups in the first place: “In general most entrepreneurs that come here (for financing) are trying to disrupt an existing business where the incumbents can't move quickly enough.” (I_3). Furthermore, the factor time will remain an aspect to consider continuously and not just at the beginning. The industry is constantly evolving and developing. Stagnation means losing market shares: “One pretty significant factor was keeping up with the time. […] This industry is seeing many many changes. The fact that we kept finding new niche products all the time, that is an accomplishment.“ (S_14).

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Growth

The ideal accomplishment of the execution in e-business, particularly in the beginning, is growth: “[…] growth is very important. Last year I would have even said only growth matters. But this year […] our reoccurring revenue base is very substantial. So keeping that is our goal.” (S_11) (I_6). Hence, generating new customers in order to represent growth should not be the only desirable outcome, but generating growth and at the same time keeping the repeating customers (as previously mentioned in ‘customer acquisition and marketing’). With an evolving growth, many new challenges occur: “[…] We had to move four times in the last four years due to our growth in size. […] There is no point in investing where we are, because we are going to move again anyways. It's great on the one hand because we are growing that forces us to move, but it takes a lot of time and energy, etc. too.” (S_16). Another challenge is to manage the growing team (I_22), which becomes much more difficult when passing certain employee numbers (S_13). This also affects concentration and focus: “In execution, the small mistakes that would hit 2% of people is nothing at first (with low growth). But later (with high growth) 2% of the people becomes a large number. So the size and the repercussions of mistakes are challenges.“ (S_13). This means that with growth there is growing complexity, and mistakes need to be identified and caught sooner due to their larger and growing impact (S_13). Hence, advanced control mechanisms are needed when the startup is growing.

While a fast and steep growth is wished and aimed for by e-business startups, the pace and method of growth is relevant for the actual success: ” […] people sometimes tend to try to grow too fast just to prove their investors that they are in eight cities or hired just ten more people, etc. If you don't reach your goals/milestones, don't go to the next level. That is important. Our business is not rocket science, there is not tons of technology. You have to be very good operationally to make it happen.” (S_10). One very disciplined way of facilitating – but not always possible – is to drive the growth based on sales instead of pumping money endlessly into growth: “It is two different approaches: mine is to grow it from zero and grow it at very relatively fast pace. Some others might go with another approach where they say: I invest millions of dollars upfront and hope for the best.” (S_12). However, this is specific to the type of e-business and thus not generally valid for all startups. Especially for a healthy business, a very fast pace of growth is not always beneficial in the long-run (S_16).

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Scalability

The importance of scalability depends on the kind of startup, and the market that it is targeting (S_15). However, in e-business startups in general scalability plays an important role for the revenue generation, profitability and hence the success. The scalability of the product, team and the entire startup is a big challenge that e-business startups have to face “The scaling perspectives, both from a peoples and technology point of view, is the biggest upcoming challenge for every startup.”,(S_10). In particular, while shipping costs for e-commerce/e-store startups decrease with scaling, it also creates new hurdles to overcome. One important example is the inverse ratio in the cost of customer acquisition: “As you scale, the channels (for customer acquisition) get more expensive, so customer acquisition costs actually increase. […]Because you have to go through TV and traditional media.” (S_13). Another challenge would be the use of back-end and front-end technology platforms, where difficulties could rise due to scaling: “We were using a smaller platform, that was not really scalable and wanted to jump to a bigger platform. […]We had a lot of challenges adapting to that platform that we couldn't really change, and our processes. The change of behavior necessary to fit with all was a big challenge.” (S_16). As already mentioned under the topic of “growth”, the impact of mistakes e.g. on employee dismissal increases with scaling (S_13). With a scaling company, the challenges and tasks, such as team management and feedback evaluation, become more complex: “What sucks is that as you grow bigger you actually slow down.“ ( S_13). The changes in business affect not only everyday business but also strategic decisions. In e-stores/e-commerce e.g. the outsourcing of shipping activities that could have been an advantage in the beginning (due to costs), becomes a disadvantage during scaling: “We always had it in the house so we think it is a big advantage to have it when you scale.” (S_13) (S_20). In sum, scalability forms an ultimate goal for an e-business startup to reach (S_10, I_4).

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Expansion / Internationality

Becoming an internationally active startup has never been as easy as in the e-business world. Although expanding into international markets should be targeted, a proof-of-concept before expanding is recommended: “(We wanted) to make sure that the recipe that worked […] in the city, will work in ten or a 100 cities.“ (S_10). Nevertheless, nearly all of the startups interviewed plan or already have entered international markets: “That was right from the beginning. We never even thought a second of staying just in (country). Not even in (continent).” (S_14) (S_10, S_12, S_13, S_16, S_17). However, some startups – especially in e-commerce/e-stores – should consider their long-term plans when signing contracts with partners and suppliers: “Right now one barrier for that is that some of the brands we have do not want us to sell the products outside of (country). That is a challenge.” (S_16).

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Supply Chain and Logistics

E-commerce/e-store startups with physical products need to consider supply chain and logistics aspects (S_20). Especially the logistics often form a challenge: “[…] Ultimately you your product has to come out the door and be profitable. But shipping is expensive, and everything has to be sent over UPS or DHL.” (S_13) (S_20). As previously mentioned, having the competencies built in house right from the beginning can form a competitive advantage especially during scaling (see ‘scaling’). The most important partner for e-commerce and e-store startups are on the logistic side and the merchandising provider: “Our biggest supplier would be on the logistics side or the sourcing of merchandise.” (S_20). Good deals and especially reliable logistics partner are key, especially with regards to ongoing scalability.

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Key Performance Indicators (KPIs)

As previously mentioned, monitoring and tracking data is a very significant success factor for the operation of an e-business: “[…] biggest success factor: primary focus on data.” (S_20) (S_12, S_13, I_3, I_4, I_9). Especially in e-commerce/e-stores and e-marketplaces it is rather a science based on the understanding of numbers than art and nevertheless crucial: “[…] It is a very mathematical equation, it is not a guessing game. And from day one, we have been focused on return in investment.” (S_12). But what numbers in particular are so relevant, that “[…] ultimately you need for sure to know your numbers very very exactly. Everything about your customer.” (S_13). The following Table 6 presents an overview of the most important and significant key performance indicators (KPIs) for e-business startup.

If a startup performs well in these KPIs the probability of being successful is extraordinarily high, since in addition to having a signaling function to the management about where attention and effort is required, the KPIs obviously also monitor the performance. Affirmatively with previously presented information, the most important KPIs across all the startups were: customer acquisition cost, conversion rate (of visitors to customers), the life-time value of a customer as well as the marketing spent (general vs. on each customer) and the growth margin.

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Risk Management

Risk management for startups means the constant prevention of risks and threats. Although risks exist in every concept, three main areas of high-impact internal risks were identified that require specific attention and dedication of resources: investment-related risks, product-related risks and management-related risks. Furthermore there are the market-related risks that are subject of discussion in chapter 4.9 as an external factor.

Risks – Investment-related

Investment-related risks consider mainly the compound of investors as well as their qualities. A non-alignment of the investors, meaning that investors that cannot work together or have different goals and objectives, is a threat to the business: “If there are different investors around the table, that means they have a mix of hedge funds, VCs, angels, etc., this is a recipe for a disaster. They have different agendas, different objectives.” (I_6). However, there can be a variety of different investor types if the expectations are clearly stated and adapted towards a shared alignment. Also the qualities of the investors in general should be a criteria when considering investment. VCs with a very self-centered interest might be a large threat for the startup: “One (risk) is the wrong choice of VCs for example that throw too much money too fast and with high expectations too early” (I_5). Cross-industry investments, meaning investors that have a different experience and investment background than the e-business startup they want to invest to, are a risk in general: “[…] it goes to having founders that you can trust in terms of market judgment, which probably means in the end that they should have existing experience in that business.” (I_5). Despite all that, with a strong investors comes the risk of loosing freedom and having to make compromises with ones vision (S_16). Taking all that into account, the founders should do their homework before deciding which investors are the right choice.

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Risks – Product-related

The product related risks focus around two main points: one is simply the product and technology not working or taking too long to come out (I_2, I_3, I_6). The other one is that the product-market-fit is missing: “Another reason (of failure) is the missing product-market-fit. Sometimes we all get wrong on that one. The perceived problem isn't as painful as it appeared when we made the investment.” (I_8) (S_10). Furthermore, the value proposition for the customer is not identified or perceived clearly enough (I_5). The fear and risk of losing customers is always there (S_14).

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Risks – Management-related

The biggest risks for startups lie in the entrepreneurs/management of the startup (I_3, I_4, I_5, I_6, I_8, I_22), since they are the executers of the business. While there are risks such as a misfit between peoples’ positions and their capabilities (e.g. a CTO as a CEO or reverse) (I_8) or people giving up (I_2), the biggest risk affecting the execution of the plan is simply the entrepreneurs not executing well enough (I_2, I_3, I_4, I_8, I_22). Delays in execution, leading to depletion of money (I_8) or underestimation of the required amount of money (I_6) are further risks and reasons for failure: “Also often there are more delays than actually planned. It always takes more time than they thought.” (I_8). Also entrepreneurs should be careful to not want too much too early on without patience, especially considering the growth of the startup: “But if you step on the gas in a wrong way or time, you are burning money and will run out.” (I_4).

Furthermore, the quality of the relationship between the entrepreneurs and the investors could result in a risk if there is a lack of transparency, which would lead to the investors losing confidence: “I think one thing is if you lose confidence in the people running the show. I mean, you can change them, you can fire people and change the management team.” (I_2).

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Risks – Market-related

The market-related risk can basically be summarized in competitive threats arising from other players (I_3, I_22) and especially if: “ […] one of the gorillas changes the way they do something – Apple, Microsoft, Google, Facebook – they can kill a Startup just by changing the rules […]” (I_9). Also, particularly relevant for e-store/e-commerce startups, if current suppliers decide to become competitors by offering online stores themselves (S_16). Last but not least, one big risk is that “[…] the market turns out to be much smaller than we thought and we would never get the return that we expected. “ (I_2).

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4.2.7 External Factors

The top-factor “external factors” deals with issues not directly in control of the startup but still affecting the success significantly. Concepts such as general trends and threats in e-business accompanied by the issues of scarce resources, competition and last but not least ‘luck’ are presented in this chapter.

Trends

Currently there are various trends and threats for e-business startups. As a trend, “(t)he cost of doing is dropping dramatically.“ (I_4), enabling the startups to scale faster than ever before. The availability of scaling services, such as the Amazon Web Services (AWS) can be used to scale a company without having to buy hardware (I_4). In e-business it all stands and falls with customer acquisition (I_3, I_4). Scaling and patience is required, because “[…] ultimately if you acquire enough customers and (if you are able to) raise your average order value, you make money.” (I_3). This is especially due to the fact, that the margins particularly in e-commerce are very small and thus scaling is an absolute requirement (I_3). However, the top-line revenue is very strong for successful e-commerce businesses and thus the growth is very high (I_3). The big challenges are thus two things: (1) to become profitable due to the low margins and (2) having a product that is disruptive enough to last long enough to reach and stay profitable (I_3). Considering the ongoing development of technology, the innovation life-cycles are decreasing enormously, creating a dynamic environment that forces startups to stay up-to-date (I_4).

Furthermore, e-business startups have to deal with a growing concern about data security (I_2). Also fraud problems such as the misuse of stolen credit cards for buying products or the redirection of traffic for pay-per-click ads are challenges that are arising (S_16). Additionally, the online-offline integration is currently a hot topic in the e-business world (I_3, S_13, S_16, S_19). Questions such as “Is it possible to grow a brand strictly online? (I_3) are looking for answers. Offering the consumers the same shopping experience online as they would have in a brick-and-mortar store can be a success factor and hence is a task for e-business, particularly e-store/e-commerce, startups (S_13, S_16, S_19).

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Scarcity of Resources

For a startup it is about “[…] maximizing your scarce resources and focusing them on very specific problems.“ (I_4). But what resources in particular are scarce and thus what does a startup have to be aware of?

The scarcest resource for e-business startups identified is the most obvious one: money (I_2, I_4, I_5, I_6, S_10, S_11, S_14, S_15, S_17, S_20, I_22). However, it is not only money but also the combination of money with “[…] the right skill-set related to money.” (I_22). Next, the second scarcest resource is good people/employees in general (S_10, S_14, S_17, S_18,, I_5, I_8) along with specialists (I_2, I_3, I_22, S_13, S_18) willing to work for startups : “[…] you need people who have very specific skills. Like front-end integrators - developer, etc.” (S_13) . For example: “[…] the obvious (scarce resource) being people with good skills in sales and marketing. In startup mode the most important thing to think about is to sell. And it is hard to find people who are good at that. And also technical people are tough to attract and to retain.” (I_8). In addition to the scarcest skill-sets sales and technical skill-sets, there were a few more qualities declared as scarce resources. Within them the most significant being product management skills and creativity with regards to everyday work and problem solving (I_3, I_5).

The biggest external threat for e-business startups are the big players, the gorillas of the market: the googles, facebooks, apples and microsofts: “If google wants to do anything, they can put 30 engineers on it and have it done in three to six months.” (S_21) (I_5, I_9, S_13, S_16). But not just by wanting to do the same thing they are a threat. Also by changing the rules online in general: “(If) one of the gorillas changes the way they do something […] they can kill a startup just by changing the rules.” (I_5); “In some cases you can see complete business plans ripped up in half, because over night your business was played out by the change of rules by major players.” (I_3). Amazon or AliBaba.com with their size, impact and power are huge threats to any e-shop/e-commerce company, especially if offering the same products (I_9, S_13). So the e-commerce/e-store startups have to keep differentiating in order to not be overruled by the competitors (S_11, S_18). Furthermore, the competition should not always be seen as a benchmark. If a competitor is offering a service much lower than any margin should allow them, adapting to that is not recommended even though it might hurt: “Of course they are digging themselves a whole, but until they find out or it start hurting them, they will keep doing that. “ (S_13).

Existing competition is not always a reason not to start a business, since the execution is the crucial element (S_10). However, with competitors in the same market, it is even more important to face that challenge strategically: “And (the competitors) were one of the reasons why we said ‘ok, the market seems quite crowded in the (country). Lets just focus on (restricted area) for now. […] So instead of spreading ourselves too thin, we could invest money into focused marketing." (S_12) . Moreover, due to the globalism of the internet, e-business startups might face specific competitive challenges: “[…] you may face competition from any place in the world, be that in China in Russia, India, US or Brazil. If someone copies your idea and executes better than you, you are in danger.” (S_19).

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“Luck”

One of the external and maybe even indefinable success factors is luck: “[…] luck plays a very huge huge role !” (S_17) (S_13, S_15, I_2, I_3). Luck in this specific context of startup and success could be defined as many different things. It could be “The people we've gotten. They happened to be at the right time, at the right place.” (S_17) or “[…] luck could be timing. Or one could say it is god. It is intangible.” (S_13).

One could argue, that ‘being at the right time at the right place’ (sometime called the “Silicon-Valley-Effect”, I_3), being ahead of competition or creating a brand that gets accepted by the customers has nothing to do with luck at all, however across nearly all the interviewees there was an agreement on the fact that indeed, “[…] there is always luck in all this.” (S_15).

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4.3 Overview of Success Factors

Within the chapters 4.2 till 4.9 the success factors of e-business startups were presented. Each one of the factors discussed has its own significant impact and role on the success of an e-business startup. Nevertheless, it would be interesting to know which factors are the most important ones and furthermore: how important in relation to each other? Since the Grounded Theory Method allows and facilitates the researcher to include additional insights into the research process, the interviewees were asked to evaluate the impact of the most significant success factors on the success with their own startup (founders) or on the startups within their investment portfolio (investors) and respectively on general startups as well.

As a result, the success factors were ranked according to their importance, and the most significant success factors are listed in Figure 18: 1) entrepreneur/team (top-category), 2) scalability, 3) product (top-category), 4) timing, 5) culture (of the startup), 6) business model, 7) network and 8) legal aspects. The scale of evaluation was starting from 1 = nearly no impact to 5 = very high impact.

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Figure 18: The most important success factors (valued). Source: own design based on interviews.

As can be seen in Figure 18, the entrepreneur/the team is the factor with the biggest impact on success, followed by the scalability of the product and startup. With a significant distance to the first two factors, the (overall) product, timing, culture and business model are pretty close to each other. Network as the second last factor still does have a significant impact, while the impact of legal clearly differs from the rest.

It has to be mentioned, that two of the factors above are defined as top-categories within this thesis: entrepreneur/team and product. Since they only exist as a whole, this does not intrude with the principles of comparison.

Furthermore, each of the success factors provided a lesson and with that contributing to fill the framework of success factors with further insights: Figure 19.

4.4 Comparison of Results with Current Literature

The results generated were compared to the current state of literature. Since there is no scientific literature identifying and presenting the success factors in a holistic and complete model from an entrepreneurial view, the literature review was conducted with each single factor or cumulative with the top-categories. While some of the success factors are present in the relevant literature, such as the team structure or the team experience, many factors are yet to be identified. Table 7 gives a cumulated overview of the current state in scientific literature regarding success factors of startup companies. A more detailed overview, connecting the authors to each single success factor is attached to the appendix.

Furthermore, due to the very practical relevancy of this topic, Table 8 gives an overview of more practical literature, such as books, personal blogs of serial entrepreneurs and other experience-based sources.

As can be depicted from both tables, the success factor/category “Team” is the most mentioned subject of success for startups, which confirms also parts of the results of this thesis, placing the team/entrepreneur as the number one success factor. Furthermore, comparing the relatively short number of scientific (and even practical) articles with the amount of identified success factors, the need for a comprehensive research in this area becomes obvious.

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Figure 19: Framework with further insights. Source: own design.

5 Venture Capital Financing: Process and Criteria for Investment

As presented in Chapter 4, raising money from investors such as business angels and especially venture capitalists is (usually) necessary in order to progress and succeed. This chapter gives a brief overview of what a startup needs to do in order to get funded by angels and venture capitalists. Some additional information that is helpful for understanding the investment process is also provided, so that the entrepreneurs seeking funding are prepared and can optimize their strategy to raise money. First the general information related to the decision-making process of investors are presented, followed by the decision-making criteria.

5.1 Overview of Decision-Making Process

As already described in chapter 2.4 “Venture capital is about making investments in a limited number of companies where the winners will generate a multiple of the capital that was invested.“ (I_2). The very high risk that comes with a startup – the earlier a startup is in the life-cycle at the time of trying to get funded the higher the risk – has to have “[…]substantial upside potential, i.e. several times your money.” (I_2). In particular, most investors aim for four to ten times their money back (I_2, I_3, I_5, I_22). However, most of the startups, and hence the investments, fail (I_2, I_3, I_4, I_8, I_9). Thus, the investors try “[…] to mitigate as many risks as possible and understand what are the open questions.” (I_3). This mitigation of risk is done in a semi-structured way. While one part is the due diligence and the criteria to fulfill, the relationship with the founders is the other part (I_2, I_4, I_6). The due diligence, including getting independent references and opinions from personal and professional networks, deals with all aspects of the business, such as legal, financial, human and every other (I_2, I_4, I_6).

Trying to understand the chances for an exit in a reasonable length of time with a return that compensates for the risk taken by investing, the decision-making process needs some time. In practice it differs from investor to investor and thus it is not possible to say how long the decision-making process generally takes (I_2, I_3, I_4, I_22). However, in e-business investments it usually takes a couple of weeks, in some cases even a few months, depending on the business and product (I_3, I_5, I_6, I_22, I_8). Yet, often the first impression turns out to be decisive: “(It takes) two minutes. - That's of course a little bit exaggerated, we have a process and it takes time. But a lot of times you hear about an interesting company and you meet with them and the team is incredibly impressive. Very quickly you'll realize that this is going to be an interesting company and I want to be involved with that.” (I_4).

Last but not least, the legal aspects for the whole process are “[…] done at the very end, meaning that once we issued the term sheet the corporate legal due diligence begins and the background check. But that's at the very end” (I_3). The previously mentioned standard documents created by law firms, some of them available online, are tried to be used in all the deals (I_4). This is especially done to keep things simple (“complexity is the enemy of success in an early stage investment. So you want to just keep it really simple”, I_4). The other aspect in the financing process where the legal work becomes relevant is the background and legal-check on the individuals as well as intellectual property rights (I_2, I_6).

5.2 Criteria for Investment

The criteria for investment can be categorized into two categories: (1) the knock-out criteria, which are the must-requirements that a startup has to fulfill in order to be considered for further consideration and (2) the complimentary criteria, which are the more detailed requirements that will be considered after the knock-out criteria are met. An overview of all the criteria is provided in Figure 20. In the following, the most important knock-out criteria are presented more detailed whereas the complimentary criteria can be depicted from Figure 20.

5.2.1 K.O.-Category 1: Team

For the investors the team, similar to the success factors, is the number one reason to invest. VCs rather invest in team of at least two co-founders, which are preferably complimentary (I_2, I_8, I_3, I_9): “The technology team is necessary at the founding level. You need to have a business guy and a tech-guy as co-founders”, (I_9); “No one has all qualities and the complementary team is very very very - even more than - important. It is essential.” (I_8). In particular those skillsets are required: engineering, marketing, product management and eventually human resources (I_3, I_2). Also if the founders have a mutual past as co-founders that failed or succeeded, this is preferred since they are used to work together (I_5).

As the biggest challenge in recruiting the attraction of good and technical people is identified (I_8). Furthermore, the ability to recruit suitable people is very important for VCs and thus it is an ability that they are looking for: “I like to make sure that team has the focus on hiring additional bright people.“ (I_3) (I_22). It is the good people, and not only the founders – although primarily – , that attract investors (I_22) (I_5).

The experience of the team in the industry is definitely important for the investors: “So first and second criteria, maybe third, is the management team and their experience in the industry.” (I_9) (I_3). Ideally this experience is already as a founder, since investors particularly prefer serial entrepreneurs: “If it's somebody that we know, a proven entrepreneur that we worked with before and had success, it'd be faster.” (I_2) (I_9, I_6). Although it is not necessarily a requirement to be a previous founder in that industry, some sort of background in the targeted industry is required: “Does the team have a background in the area that we are trying to disrupt? And what has been the success of the team and what have they been focused on?” (I_3).

Full-time commitment is absolutely crucial for getting financing: “The commitment to the project has to be done prior to coming to us. Meaning, the entrepreneurs have to quit their jobs BEFORE they get the financing.” (I_8). The commitment of the founders reflects their motivation and thus their ability to overcome difficult and energy-consuming challenges: ”I prefer people who are very committed, very very committed.” (I_5). In order to incentivize the commitment even more, many investors include the founders in the risk: “I want them to be at risk and understand that spending money means spending their own money. You respect money then much more.” (I_5)

Overall, the gut-feeling is important (I_2, I_3 I_6, I_8). This is mainly, “[…] because you have many variables to analyze. At the end of the day your analysis gives you a good idea but it’s never perfect and you need to make an investment call. So the art of venture capital is deciding to go with it or not given the information, the gut feel and the experience you bring to bear.“ (I_2). The investors need to truly believe that “[…] what they think that they can make happen, will actually happen.“ (I_8). Thus, besides the hard criteria, there is always a gut-feel.

5.2.2 K.O.-Category 2: Product

The investors have a very defined picture of what specifications they expect from the product in order to invest. The product has to be disruptive, solving a repeatable problem and address that problem in a very clear way (I_2, I_3, I_6, I_8, I_9): “What is the problem that you are solving? Who has this problem? You need to have something disruptive one way or another so that somebody is willing to take a chance on a new, high risk, small company.” (I_2). Incremental improvements are not enough. Hence, a me-too product, meaning a product that already exists in that or a similar form, is usually not a subject of investment (I_2, I_3; I_6). However, a me-too product is not always directly disqualified for investment: “When we talk about (anonymized), they were a me-too product. They were the first and fastest first mover in Canada, but the business model existed in (another market) for ten years. So the business model was already proven.” (I_9).

However, a successful product-market-fit is an absolute requirement. The startup needs to offer “[…] a product-market-fit that actually creates some sort of value in order for us to continue to invest.” (I_22).

Some sort of proof-of-concept (sales, early or scaling customer) is required (I_6): “So there has got to be a small scale proof that some people are ready to buy it.” (I_8) (I_6). A proven and transferable product and business model from another market can be interesting for investors if it is new for that specific market. Furthermore, the long-term perspective and potential of the product is important: “[…] I really want to make sure that it is not just one product but actually a platform. Meaning, that it is at least a five-year roadmap for additional products and (the entrepreneurs) can address a bigger market over time.” ( I_3). If the entrepreneurs’ mindset are too focused on one industry with only one interesting product, this could be dangerous, because that product will be disrupted again (I_3). Also, a continuous and quick iteration is necessary (I_22).

From an investors’ point of view, the e-business startup and the product are required to be scalable (S_17, I_4, I_22). This is especially due to the fact, that “ […] otherwise the payoff will be limited and the investment probably isn’t worth the risk and reward equation as a startup.” (I_5). This particularly explains the factor behind the following quote regarding the value and impact of a startup : “[…] I think some of the most valuable businesses are not really scalable. (However) in a VC-world I think that (scalability) is the most important thing.“ (S_17). After all, the scalability can be identified as the most important goal for investors, since only a fast-growing and scalable company is very likely to provide an adequate exit and thus fulfill the initial investment purpose of the venture capitalists: “At the end of the day, all (measures) work in concert, so you have to […] make sure that you have a business at scale over a long period that makes sense.” (I_4).

5.2.3 K.O.-Category 3: Market and Strategy

The market size as another must requirement needs to be large enough: “I typically don't like something if the addressing market is not at least 500 Million Dollars.“ (I_3). There has to be enough and preferably unlimited growth potential in order to consider the startup for investment: “If there is a limited market, we would not invest.” (I_2) (I_9, I_22). Ideally, the market is big enough so that if competitors enter as well, it does not influence the revenues significantly. (S_21, I_9). Furthermore, the focus should not be just on the piece of a market: “ […] a lot of companies are so laser-focused, that they never get to the bigger opportunities. In other words, they might own a 20 Million Dollar addressable market, but if all their resources are on that, they don't get to migrate to the 2 Billion Dollar market.” ( I_3).

Most of the VCs require a business plan in order to invest (I_8, I_2, I_6). However, it is not about the actual projections and the business case presented. It is rather about a well-thought-out business strategy and the fact, “[…] that the founders have sat down and went through a thoughtful process and took the time to reflect and detail on how they are going to execute their project.” (I_8), (I_2).

Also the startup needs to have an exit-strategy: ”You need a clear exit strategy. You need to know who is likely to acquire the company.” (I_2). And the exit-strategy includes the financial planning to that point as well as knowing potential customers right from the beginning (I_6, I_9).

Within e-business, there are various challenges depending on the type of e-business startup. An e-commerce/e-store startup is often straightforward offering the investor’s relevant analytics that provide value (KPIs, financial indicators) such as the customer acquisition costs, life-time value of the customer, etc. However, some e-business startups that create a completely new market opportunity are more difficult to assess: “And then there are some companies, where it is more objective. Because they are actually creating new market opportunities. “ (I_3). As a last point it is to mention that a new startup/product is not supposed to be in direct competition with any of the companies in the existing investment portfolio of the investors (I_3, I_6).

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Figure 20: Decision-Making Criteria for Venture Capitalists. Source: own design based on interviews.

6 Conclusion

The conclusion consists of a summary of the findings as well as a research perspective towards future research needs in this area of entrepreneurship.

6.1 Summary of Findings

In a time where the number of startup foundations and failings at the same time is continuously rising, it is more important than ever to identify what makes a startup successful. Therefore, this industry-relevant question forms the central subject of this thesis with a focus on the strongest growing startup industry in North America: e-business startups.

To address this research question, a six-step-model was generated, consisting of six categories: preparation, team, idea/product, financing, targeting and execution as well as one additional category: external factors. Each of these categories consists of various concepts, defining the success factors for e-business startups. Amongst others, the most important success factors were identified in the following categories and concepts that are presented by descending impact: the entrepreneur and the team (as a top-category), the scalability (of the product and company), the product (as a top-category), the timing of execution, the culture of the startup as well as the business model and the network. On contrary, legal aspects were only important to some little extent and very business-specific (software/intellectual property). Since access to capital and the financing process play a decisive role in the survival of a startup, the decision-making criteria of venture capitalists were analyzed in detail as well. Here, the resulting framework with the criteria could be summarized in the three categories: team, product, and market and strategy, each of them consisting first-level knock-out criteria and more detailed second-level criteria.

The success factors and the decision-making criteria outlined in this research need to be placed in the appropriate context. The factors and criteria are based on an entrepreneurial view rather than a technical or process-related view. Overall, the insights derived in this thesis function as a “compass” for current and future-entrepreneurs from a scientific point of view. Although the frameworks presented – especially due to the external and uncontrollable factors – cannot be interpreted as an exact recipe for success, it does however function as an orientation towards the right direction and thus, consequent success.

6.2 Research Perspective

The research potential in the field of entrepreneurship and specifically with reference to success factors of startup companies is very high. Although there are many experienced entrepreneurs sharing their experience and trying to serve as mentors for to-be-entrepreneurs, there is a significant lack of scientific material researching success factors of startup companies. Question such as ideal choices of investors, optimal growth patterns or paces are highly relevant for entrepreneurial research and yet are to be answered.

Furthermore, from the investment point of view, questions regarding the optimal funding size in combination with the numbers of partners managing the fund are interesting. How much money should be invested at what point to increase the chances of success as much as possible?

Also relevant would be deeper research on each success factor. For example, having identified that a technical and business founding member combination increases the chances of success significantly, it would be beneficial to identify if there are further combinations that might be even more promising.

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2. What is your business about (service, product, target group, key customers, etc.) and how did you find the idea/solution?

3. What was/still is the integral part of the idea behind the company?

a. Did the idea change over the time (If so, why)?

Section 2: Success Story of the Company

4. What were important events and milestones in your way to success?

5. What were the biggest challenges? And how did you face these challenges?

6. What were the main risks identified? How did you handle potential risks? Did any of the upfront-identified risks actually occur? Did any other unforeseen threat occur to your company?

7. What were the most important factors that made your company successful?(Please name up to five factors if possible)

a) Why these factors?

b) Are these factors directly/indirectly measurable? Could you measure these factors with certain KPIs (If so, which KPIs)?

c) Are there any not measureable success factors?

8. Do you have any key partner/suppliers? Why did you choose those?

Section 3: Preparation

9. How was the (main) Team chosen/developed? Where does the motivation come from for the team?

10. Before starting the venture, did you check in any way (analysis), whether this idea/the product could become successful? If yes: how?

a) At which stage was your idea/product?

b) Did it change after looking at several analyses/the competition?

c) Were all the analyses done by the team itself/you yourself or were any external active sources involved (consultants)?

11. How important was a market research upfront? Were there any competitors that made you doubt if this could work? If so, how did you handle this?

12. When did you decide to write a business plan (at which stage, time)? At what point did you start thinking about costs and revenues?

13. How did you calculate in advance your revenue streams? Based on experience/market research?

14. Did you care about legal aspects right from the beginning? Were you scared to tell other people about your idea (since they could copy it)?

15. How did you finance your startup in the first place? How did you decide/choose between business angels/venture capitalists/private financing (friends and family-money)?

Section 4: General Startup Points

16. What are the main advantages and disadvantages of Startup companies compared to established companies?

17. What are usually scares resources for a startup (network, money, time, knowledge, entrepreneurs, endurance/patience...,) ?

18. Which factors are important by looking for an investment source?

19. At what point would you say a Startup is now an „established“ company/ not a Startup anymore?

20. At what point would you say a Startup is „successful“?

a) Could you name any companies that you would refer to as „successful startups“ (why these)?

21. Does it make sense to expand the portfolio as a Startup or rather stick to the one successful product?

22. (Estimation Question): How important/significant would you rate the following aspects (1 being the least important, 5 the most important) [in general vs. in your specific case]

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Optional Section 5: Future points/Upcoming

23. Do you plan to tap into other markets (international/national/ different target groups)?

24. What are the biggest upcoming challenges in the future (for your business in specific)?

25. Are the any questions you might be interested in from a research point of view?

Attachment 3: Questionnaire / Interview-Guideline (VCs)

Collaborative Research Project: Success Factors of Startup Companies

Interview-Guideline

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Section 1: General Key Facts

26. What is your current position within the company?

27. What is the integral part of the idea behind the company (e.g. is there an investment-focus on specific industries, such as high-tech, health-care, eBusiness, etc.)?

a. Did the focus change over the time (If so, why)?

28. Have you ever been actively involved in the founding of a Startup as an operative member?

Section 2: Decision-making process

29. Are there any knock-out criteria, meaning a must-requirement, which a Startup has to fulfill in order for you to consider to Startup at all? If yes: what are these requirements and why these?

30. Are there any other additional requirements a Startup has to fulfill in order for you to take the case into consideration?

31. What are the factors that you are looking for in a company to invest?
(Please name up to five factors if possible)

d) Why these factors?

e) Are these factors directly/indirectly measurable? Could you measure these factors with certain KPIs (If so, which KPIs)?

f) Are there any not measureable factors (“soft factors”, such as an impression of the entrepreneurs, the competencies, etc.)?

32. What are the main reasons a Startup (investment) usually fails?

33. What are the main risks usually identified? How do you handle potential risks? How about unforeseen risks?

34. Are you looking for ideas (at which stage?)/entrepreneurs/complete business plans?

35. At what stage can to-be-entrepreneurs reach to you for an investment? Why at this stage?

36. Is there any way to estimate the probability of success of the Startups? If yes: how? Is there any kind of analysis that you do upfront to estimate the probability?

37. How long does it usually take to decide whether you invest or not? What is the reason behind the duration (just the experience or a standard-procedure)?

38. How does it work with the company-shares in proportion to investment? Is there a minimum share/investment-proportion?

39. How is the legal-procedure?

Section 3: General Startup Section

40. What are the main advantages and disadvantages of Startup Companies compared to established companies?

41. At what point would you say a Startup is now an „established“ company/ not a Startup anymore?

42. Based on your experience, what are usually scares resources for a startup (network, money, time, knowledge, entrepreneurs, patience/endurance, ...,) ?

43. At what point would you say a Startup is „successful“?

d) Could you name any companies that you would refer to as „successful startups“ (why these)?

44. Does it make sense to expand the portfolio as a Startup or rather stick to the one successful product (of course this depends on the industry/Startup/product – but a tendency in general if possible) ?

45. (Estimation Question): How important/significant would you rate the following aspects (1 being the least important, 5 the most important)

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Section 4: Future points/Upcoming

46. What are the biggest upcoming challenges in the future in the field of Startup-Investment?

47. Are the any questions you might be interested in from a research point of view?

Attachment 3: Literature Comparison with Success Factors in Detail

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[...]

[1] The dot-com boom describes a period of time (ca. 1997-2000) where internet-based companies ("dot-coms") were founded in excess, resulting in a rapid rise of equity value for industrialized nations in their internet sector. However, many of these companies failed, giving it the name of dot-com (speculative) bubble.

[2] The point where total costs equal total revenues.

[3] Return on Investment

[4] for more information: https://www.optimizely.com/

[5] randomized experiments with two options (A and B) functioning as the control and treatment in ancontrolled experiment

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